Provident Financial tumbles on cash-call report, analysts see value

Provident Financial is down at its lowest levels since the mid 1990s on the back of a weekend newspaper report that suggested the doorstep lender has been sounding out investors for a "bumper" capital raise.

Shares in the Provvy early on Monday sank below 567p for the first time since 1996 and as midday approached were still down more than 9% at 597.4p.

The Sunday Telegraph had said management were looking for up to £500m to cover the cost of fines and to shore up its balance sheet. The article said that the announcement could be made alongside results that are due on Tuesday.

Broker Numis suggested the balance sheet does not need shoring up as Provident is "trading profitably and it is not paying dividends".

Provident, as well as recovering from its calamitous strategic rejig last year, is under investigation by the Financial Conduct Authority over its Moneybarn car loans business and the repayment option plan (ROP) sold by its Vanquis Bank arm. At the start of February, Malcolm Le May was made permanent chief executive, with the banking veteran having last year been appointed executive chairman on temporary basis.

"While we believe it is possible that Provident could secure a contingent capital facility from shareholders, if there is a capital raise we believe a firm outcome from the FCA is required so that the quantum of any customer redress can be known," Numis said.

The resolution of ROP "should see investors start to look at the value of the group as opposed to obsessing about ROP", analyst James Hamilton said.

Hamilton believes Provident is worth about £3bn "on a look through basis" and consequently if ROP were to cost £0.5bn -- though he does not think it will cost anything like that -- "shareholders should double their money".

The shares were seen as a 'buy', "if there is 100% upside in a worst case scenario".