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Provident soars on relief over redress and rights issue

Shares in doorstep lender surge 73% as settlement with regulator and capital raise are both smaller than feared.

Provident soars on relief over redress and rights issue

Shares in Provident Financial (PFG) have surged amid investor relief over the size of the embattled lender's settlement with the Financial Conduct Authority (FCA) and its rights issue, both of which were smaller than feared.

Shares in the doorstep lender soared 73% to £10.19 as investors were also buoyed by the news dividends would be restored in its 2018 financial year.

The lender announced it had made a £172 million provision for a settlement with the FCA over its repayment option plan (ROP), together with £20 million to cover anticipated costs related to a separate investigation into its Moneybarn car and van financing arm.

To cover these costs, the group will raise £331 million through a rights issue, less than the £500 million trailed in newspaper reports.

Peel Hunt analyst Stuart Duncan said the news represented an 'inflection point' for Provident Financial.

'A resolution on the ROP issue has been reached and the rights issue ensures the balance sheet is robust and sufficient to allow the group to focus on the future,' he said.

Shore Capital analyst Gary Greenwood said the news was better than feared, having anticipated total costs of around £240 million for the ROP settlement alone.

'In addition, management has indicated that it plans to resume sales of the ROP in due course, following further discussions with the FCA,' he said.

'While we expect the future profitability of the product to be weaker than in the past, this does however suggest that there is still some long-term benefit to be obtained. Again this is a better outcome than we had expected.'

Having scrapped dividend payments for 2017, Provident Financial said it would resume payouts this year with a nominal dividend, adopting a progressive policy in 2019.

The news will be greeted with relief by fund managers Neil Woodford and Mark Barnett, the company's biggest backers, who between them own almost half the shares.

Provident said their fund groups Woodford Investment Management and Invesco Perpetual were both supportive of the rights issue.

Shares in Provident collapsed last summer after the group delivered two profit warnings, revealed FCA investigations into its ROP product and Moneybarn division, scrapped its dividend and announced the departure of chief executive Peter Crook.

Even with today's surge, they remain well below the £28.65 level they were trading before last summer's first profit warning.

4 comments so far. Why not have your say?

Jeremy Woodhouse

Feb 27, 2018 at 12:27

The temporary (?) surge in Provident Financial shares may be of some comfort to Woodford but he must be losing sleep over the slump in AA shares. When is he going to admit that he is rapidly losing his star rated stock picking skills.

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Keith Cobby

Feb 27, 2018 at 18:13

This is a poor quality investment and a rescue rights issue is throwing good money after bad.

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Derek Mackrill

Feb 27, 2018 at 18:57

A fund manager does not award himself his star rated stock picking skills. Others conclude this! What is there to admit! He still has a fantastic long term record.

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Dan Mall

Feb 28, 2018 at 16:41

Well said Derek Mackrill, I totally agree

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