Provident Financial is still finding the going tough after its botched attempt to upend its business model last year. 

Its core Consumer Credit Division (CCD) is expected to report a pre-exceptional loss of approximately £120m in 2017. That’s at the upper end of the £80m-£120m guidance provided in August 2017 and reflects the fact it has not been able persuade lost customers and agents to come back on board despite its efforts; or as management puts it – a lower rate of reconnection than expected. Once customers and the agents they know lose trust it’s very hard to get them back.

As we noted in October, the problem is that while there is a plan to fix what went wrong, management is sticking with the revamped operating model that caused all the problems. Self-employed agents are still out, customer experience managers are in. Whilst intended to allow Provident to manage the entire customer journey, it’s the self-inflicted source of all the problems and ought to be ditched.

Collection performance has improved over the last few months - in December it stood at 78%, which is up from 65% in September and 57% in August. But it remains well below the 90% seen under the old operating model.

Total home credit receivables ended the year at around £350m, which is a slight improvement from £316m at September 201, but still a terrifying drop from the £560m a year ago.

Vanquis Bank was also mixed - total new customer bookings for 2017 were 437,000, up from 406,000 in 2016, but fourth quarter new customer bookings of 93,000 was a fall of 20% from the same period in 2016. A lot of this is down to Sainsbury’s acquisition of Argos and taking credit facilities in-house. For Vanquis the Argos partnership delivered volumes in the key fourth quarter of just 1,000 in 2017 compared with 15,000 in 2016.

Satsuma is set to report a £5m loss for the year as the problems in home credit leach out into the into the rest of the group. The flow of customers from home credit into Satsuma has slowed due to the recent disruption. Nevertheless Q4 showed new business volumes approximately 40% higher than the same period in 2016, with customer numbers up from 71,000 at September 2017 to 79,000 at December 2017. Receivables increased from to £35m from 32m over the same period.

Regulatory probes also hang over the business. Vanquis Bank and Moneybarn are both being investigated by the Financial Conduct Authority. No fresh guidance on resolution or the scale of any potential fine makes it hard to assess what a fair price for the shares might be. If the FCA goes full PPI on Vanquis, it has a serious problem.
For now it has cash on hand worth £34m, which is down from £74m at the start of October, and headroom on debt facilities of £66m. Loans worth £35m need to be repaid in the first quarter. In October we noted that gearing had risen to x3 from x2.7 in June.

Provident now has £34m of cash and headroom on debt facilities of £66m. Additional capacity for Vanquis Bank to take retail deposits amounted to £77m at the end of 2017, leaving total funding capacity at £177m. That is down from £236m in October. Depletion of cash reserves should be monitored. 

Shares dropped 6% on the open while those of rival Morses Club rose nearly 2%.


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