Provident Financial (lon:pfg)
Provident - Overreaction To Nothing?

Provident Financial Financials

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Provident Financial Share Price
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Title: Provident - Overreaction To Nothing?
Company: PFG - Provident Financial
Share Price Then: 523p
Author: Ian Smith
Date: Tue 15 Jan 2019
Comments: I can’t really see the reason for today's 20% drop apart from a prediction of profits at the lower end of expectation.

For those who haven’t been following Provident, originally a doorstep lender, they changed from using self employed agents to employed agents to sell door step loans and introduced tighter controls on lending to people who had a loan, paid it off and then immediately took out a new one.

Of course nobody is going to say that there was a big problem with the self employed agents building a book of customers who were effectively always in debt and encouraged to borrow than they could afford.

The group has moved adding the Vanquish credit card and on-line loans for cars Moneybarn and general purpose Satsuma.

For the consumer credit division the trading update reported
…..where the CEM typically did not originate the credit following the change in operating model, remains significantly lower than historic levels and has not shown any improvement,…

When provident went from self employed agents to employed agents who are managed according to the latest standards it was inevitable that the customers who were paying off loans only to take out new ones would start to be lost and default.

The priority for these customers was to keep Provident happy over all parties as they needed new loans, once the probability of getting new loans disappeared then so did the importance of making the repayment.

….the number of CEMs has shown a further reduction from around 2,300 at the end of September to around 2,100 at the end of December….

Is slightly more worrying as having agents out in the field selling loans is vital, but this could be a temporary issue as I suspect that some who used to be self employed became employed and found that they are worse off as they are no longer paid commission and their repeat borrowers have been excluded by the new credit worthiness checks.

If some element of performance related pay is reintroduced some may come back.

The longer term loans service, Satsuma appears to be performing as expected and had no new issues.

Moneybarn, the car loan division has some historic issues with offering loans that probably shouldn't have been offered on affordability grounds.

Vanquish offered an insurance type product called ROP which allowed payment holidays and protection against defaults being passed on to credit reference agencies. Unlike PPI there were no issues with it being hidden but it was expensive and the cost was added to the account balance possibly incurring interest.

Neither Moneybarn or Vanquish have had new problems or the old ones costing more to fix than expected.
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