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Provident Financial

Provident Financial shares drop as JP Morgan cuts target price and earnings forecasts

Provident Financial had its target price lowered to 750p from 1,040p by JP Morgan

Provident Financial
Provident Financial announced a rights issue in February

Provident Financial PLC (LON:PFG) shares declined after JP Morgan cut its earnings estimates to reflect the impact of the lender’s recent rights issue and new IFRS 9 accounting rules.

The troubled doorstop lender announced in February that it was launching a fully underwritten rights issue of more than 104mln new ordinary shares to raise about £331mln.

Chief executive Malcolm Le May had said the rights issue would help stabilise the financial position and enable the business to grow again after suffering huge loses and paying a hefty settlement for credit card repayment misdemeanours.

READ: Provident Financial's rights issue shares begin trading on LSE

Like the rest of the banking sector, IFRS 9, which came into effect in January, is expected to affect the company’s profits as the legislation requires lenders to recognise impairment losses on receivable and loans sooner. 

JP Morgan said: “Our fiscal years 2018/19/20 earnings per share estimates are reduced to 58.9p/66.5p/74.7p from 97.7p/125.3p/150.8p reflecting IFRS 9 but also the impact of the rights issue which increases the outstanding shares by 105mln to 253mln.”

The broker cut its target price to 750p from 1,040p and left its rating at ‘neutral’.

It also slashed its forecasts for pre-tax profit in 2018, 2019 and 2020 to £177mln, £226mln and £253mln from £198mln, £248mln and £296mln respectively.

JP Morgan said the group’s Vanquis Bank subsidiary is most negatively affected by IFRS9 due to stronger loan growth expected in 2019. 

“Our Vanquis FY18/FY19/FY20 PBT estimates are reduced to £197m/£199m/£213m from £208m/£215m/£225m respectively, reflecting the impact of IFRS 9.”

In February, the Financial Conduct Authority fined Vanquis £2mln and ordered it to pay £169mln to customers in compensation for mis-selling a repayment plan. 

Shares in Provident Financial fell 1% to 641p in early afternoon trading. 

Quick facts: Provident Financial

Price: £3.70

Market: LSE
Market Cap: £937.75 m
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