Provident Financial shares have rocketed over 50 percent this morning after its results were warmly welcomed by investors who clearly feared much worse.
The rally comes despite Provident’s Vanquis Bank arm being slapped with a £2million fine and ordered to pay £168.8million in compensation to customers lumbered with its pricey repayment option plan.
The Financial Conduct Authority, which dished out the fine, said Vanquis failed to inform customers that the full cost of the product included an interest component ‘where there was an end of the month unpaid balance on their credit card.’
Penalty: Provident Financial’s owner, Vanquis Bank, has been slapped with a £2million fine and ordered to pay £168.8million in compensation
Vanquis’ customers who were charged for using the ROP from 1 April 2014 will now get their share of the £168.8million compensation package and will be contacted by Vanquis ‘in due course.’
Vanquis had already voluntarily agreed to pay back the interest customers were charged on the ROP from June 2003 to 31 March 2014, which is the period before the FCA took over as the UK’s financial watchdog.
In response to the fine and compensation payout, embattled sub-prime lender Provident has announced a £331million rights issue in a bid to drive up its cash flows.
In its latest preliminary annual results, Provident said the rights issue will help bolster its bruised balance sheet, cover the cost of the Vanquis settlement and provide a boost amid a predicted £20million hit from an investigation into its car financing arm, Moneybarn, over affordability checks.
Provident’s rights issue has received support from Invesco Limited and Woodford Investment Management Limited, who hold 48.3 per cent of the company’s shares between them.
Share price jump: Provident’s share price has jumped 34.76 per cent to 792.40p
Malcolm Le May, Provident’s chief executive, said: ‘When I became group CEO, I stated my key objective was to execute a turnaround of the group.
‘Today we have made progress on that objective by agreeing a resolution with the FCA in relation to Vanquis Bank and we now have a clear view on the estimated cost of the FCA investigation of Moneybarn.
‘To grow the business and deliver long-term sustainable returns to our shareholders, PFG needs to strengthen its balance sheet.
‘Today we have announced a proposed rights issue to raise net proceeds of £300m which the Board believes will allow the group to implement its strategy and restart paying a progressive dividend in 2019.’
He added: ‘The recovery in Provident home credit is on track with collections performance continuing to improve. In 2018, the group will continue to rebuild trust with our customers, regulators, shareholders and employees.’
Provident posted an annual loss of £123million last year, compared to profits of £343.9million in 2016.
Stripping out the hit from the Moneybarn saga, Provident’s underlying profits were still down 67 per cent to £109.1million.
The company suspended its dividend last year, when it first flagged that it would be recording a loss for the year.
The slump also came as the group started work on its drive to replace its self-employed door-to-door sales agents with full-time ‘customer experience managers.’
Neil Wilson, a senior analyst at ETX Capital, said: ‘Usually it’s best to get all the bad news out at once – and Provident Financial is now a specialist in this kind of fare.
Affected Vanquis customers will be contacted by the company ‘in due course.’
But, if you would like to speak to Vanquis about your compensation, call 0330 099 3000.
‘But actually today’s update is not entirely all bad – the total FCA misconduct provisions of around £200m are well below the £300m that some touted and the £300m cash call is a lot less than then £500m that was being talked about in the press.
‘At least rumours of investor apathy towards a cash call seem to be unfounded – not because there is no cash call, but because at the very least the £331m rights issue (net £300m, or about a third of market cap) is fully underwritten.
‘Management had to really low-ball their offer here – the new shares have been flogged at 315p, which represents a discount of 46% to yesterday’s closing price of 588p, or about a tenth of where the shares were before the botched reorganisation was revealed less than a year ago.’