Provident Financial Group (LON:PFG) was hit by a swathe of broker downgrades today after the sub-prime credit lender’s profit warning past the market close last night.
US broker Jefferies led the way with a downgrade to 3,478p (from 3,845p) though that was still looking optimistic as the price today crashed 16% to 2,400p.
Provident blamed the migration to a new business model for greater than expected operational disruption.The change involves a switch to an employed team to manage customers rather than using self-employed agents,
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But agent vacancies are running at twice the rate anticipated, which has led to a deterioration in the collections performance and will push the initial disruption cost up to £40mln from an expected £15mln.
Loans are also running some £37mln below a year ago for the same five months period.
“We cut EPS by 15% in 2017F and 12% in 2018F and our PT (price target) to 3,478p,” said Jefferies.
Longer term, the US broker is still confident the company's Consumer Credit arm can still generate £150mln of pre-tax profit, but the lost sales will take time to recover
“To be clear, this is extremely disappointing news but PFG points out that credit quality in the home collected credit book in unchanged, Vanquis Bank has continued very strong flow of new account booking in Q2 and Moneybarn continues to deliver strong new business volumes.”
Like Jefferies, Shore Capital remains a buyer of the shares and said that while it expects to downgrade dividend forecasts, an outright cut is highly unlikely even though this means that cover will drop below management's target minimum of 1.25times.
“We also expect to reduce our fair value estimate to around 3000p-3100p (from 3350p),” said Shore.
Liberum is a seller with a target price of 2,770p.
“We had been concerned about rising impairments and customer attrition in CCD as the new model was implemented. The transition appears to have been more painful than expected."