A second profit warning in as many months didn’t sit well with Provident Financial PLC (LON:PFG) investors yesterday and, unsurprisingly, it hasn’t gone down well with brokers either.
In fact, JP Morgan, Barclays and Citigroup have all downgraded the lenders and slashed their estimates.
READ: Provident boss resigns as lender cancels dividend and issues profit warning
On Tuesday, Provident waved goodbye to its boss, suspended the interim dividend and revealed the Financial Conduct Authority is investigating its Vanquis subsidiary.
Not to mention the profit warning it issued after a “rapid deterioration” in the performance of its home credit business.
‘Uncertainty too great’
Analysts at Citigroup said the “uncertainty is too great” at this stage as it downgraded to ‘neutral’.
“Though the outlook for FY18 from an operational perspective is more encouraging, the market’s focus in the short term will remain whether or not the company will get to that point given the outlook for potential liquidity actions in the coming months,” wrote analyst Owen Jones in a note this morning.
JP Morgan slashes forecasts
READ: Provident Financial shares drop after half-year profits plunge
JP Morgan’s Gurjit Kambo echoed those “heightened … uncertainty” fears as he slashed his earnings forecasts for 2017, 2018 and 2019 by a whopping 66%, 52% and 45% respectively.
“Within Home Credit, management is now expecting a pre-exceptional loss of £80-120mln driven by both weaker-than-expected collections and sales.
“At this stage, no guidance has been provided for future periods, but we assume the worst-case scenario of £120m will halve in 2018 (i.e. -£60m PBT) and be flat in 2019 (i.e. £0m PBT).”
Kambo now reckons the stock is worth £12 (from £32) reflecting the uncertainty and challenges ahead.
Issues can be remedied
Barclays analyst Toni Dang was far more brutal with his new price target which he has chopped by more than 80% to £6 (from £31.50).
That said, he doesn’t think the issues are the be-all-and-end-all and expects sales to pick up again, although he does acknowledge that they’re unlikely to return to the same levels any time soon.
“Our base case is that the operational disruption is self-inflicted and can be remedied, with the newly organized salesforce eventually able to collect existing debts and resume gathering new sales, although not at the same effectiveness as before,” wrote Dang in this morning’s note.
“However, downgrade risk is still present due to lack of visibility on timeline, measures to be put in place and how much further investment is required.
“With uncertainty over the FCA investigation and the size of the potential financial impact, we lack conviction and downgrade to ‘equal weight’ from ‘overweight’.”
Like Citi’s Jones, Dang also slashed his earnings estimates for this year and next by 65% and 29%, although he’s assuming that the home credit business breaks even in 2018.
Provident shares were 0.3% higher on Wednesday to 592p, having lost three-quarters of their value yeaterday.