Provident Financial impresses with Vanquis outperformance

Third quarter results from Provident Financial showed the non-standard lender's UK bank continued to surpass expectations, with other businesses solid.

The UK arm of Vanquis Bank, which provides 'responsible' credit card lending to people who have been turned down by standard providers, drove year-on-year customer growth of 12% and maintained strong margins but will lose its divisional managing director to retirement next year.

The annualised risk-adjusted margin slipped only slightly to around 33%, while a customer acquisition programme delivered new account bookings at a similar level to last year through the third quarter, which, coupled with a strategy of increasing credit lines to customers with sound payment histories, resulted in average receivables growth of approximately 21%.

The Vanquis Poland arm has been exited after legislative clampdown, with a full year pre-tax loss of £1.8m in line with guidance given at the haf-year stage.

As part of effort to develop the consumer credit division (CCD) into a broader based lending business, progress was reported in the online direct repayment loan product, Satsuma, with new business volumes around three times higher than last year, and the guarantor loan pilot product, Glo, has "progressed well" and management has decided to proceed to a full roll out in 2016.

Broadly, CCD saw continued "modest improvement" in demand and customer confidence, though customer numbers fell roughly 15% year-on-year to roughly 1m through the sale of delinquent low value customer balances to third party debt purchase companies and imposition of tighter credit standards as part of the repositioning of the business.

The rate of shrinkage in the CCD receivables book is moderating though, Provident said, with a year-on-year decrease of 14% at September versus 18.0% at the half year and 20.5% at the start of the year.

Moneybarn, the bad credit car finance arm, was also broadly in-line with customer numbers and receivables rising to 29,000 and £209.0m respectively at the end of September, from 26,000 and £186.5m at the end of June.

Analysts at Shore Capital said this was a "strong update" from the FTSE 250 group.

"However, while the prospects for the group remain very encouraging, we believe that these are already well reflected in the current valuation."