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Provident Financial deals further blow to Woodford and Barnett

Shares in doorstep lender slump on profit warning, dealing another blow to big fund manager backers Neil Woodford and Mark Barnett

Provident Financial deals further blow to Woodford and Barnett

Shares in Provident Financial have tumbled after the troubled doorstep lender issued a profit warning, dealing another blow to big fund manager backers Neil Woodford and Mark Barnett.

The stock tumbled 18.3% to 528.6p as Provident said it expected 2018 earnings to come in at the lower end of market expectations, blaming higher impairments at its credit card business Vanquis Bank.

The lender said the 'modestly higher-than-expected' impairments at Vanquis were due to 'the continued increase in the use of payment arrangements from enhanced forbearance measures' intended to ease the burden for customers struggling to pay their debts.

Shore Capital analyst Gary Greenwood, who had rated the shares a 'buy', placed his recommendation under review.

'Today's news is another severe kick in the teeth for the investment case and is likely to see the shares fall sharply,' he said.

'We place our recommendation under review pending the share price settling down, but at this stage our inkling is that the shares would need to be trading closer to 500p for us to maintain a positive stance.'

Russ Mould, investment director at AJ Bell, said the sharp share price fall in reaction to a relatively moderate profit warning showed 'how little credit in the bank the company itself has with shareholders, left bruised by the precipitous collapse in the stock which saw it exit the FTSE 100'.

Shares in Provident Financial have failed to deliver any meaningful recovery from their collapse in the summer of 2017, when the doorstep lender announced the departure of its chief executive, scrapped its dividend, revealed a regulatory probe into its repayment option plan product and delivered a profit warning.

Big backers hit

The company's two biggest backers, Woodford and Barnett, have stood by the stock. Woodford has been steadily increasing his stake since the shares 70% plunge in August 2017, overtaking his former employer, Invesco, as the doorstep lender's biggest shareholder, with just under a quarter of their shares.

Provident Financial is the fourth largest holding in his £5 billion Woodford Equity Income fund, accounting for 4.9% of the portfolio, and the second largest position in his Woodford Income Focus fund, at 5.2%.

The stock has meanwhile drifted outside the top 10 holdings for Mark Barnett's Invesco Income and High Income funds and Edinburgh (EDIN) investment trusts. At the end of October, it represented a 1.7% position in the trust.

Among the high conviction backers of the stock is Wes McCoy, with provident Financial the top holding in his Standard Life Investments UK Equity Unconstrained fund, representing 5.3% of the portfolio.

Citywire A-rated Alexander Darwall, who had been a backer, held in the Jupiter European Opportunities (JEO) investment trust, following the shares' collapse.

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Related Fund Managers

Wesley McCoy
Wesley McCoy Average Total Return:
154/165 in Equity - UK (All Companies) (Performance over 3 years)
Neil Woodford
Neil Woodford Average Total Return:
165/165 in Equity - UK (All Companies) (Performance over 3 years)
Mark Barnett
Mark Barnett Average Total Return:
90/91 in Equity - UK Equity Income (Performance over 3 years)
Alexander Darwall
Alexander Darwall Average Total Return:
3/103 in Equity - Europe Excluding UK (Performance over 3 years)

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