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Berenberg slashes price target on Provident Financial

By Iain Gilbert

Date: Wednesday 01 Apr 2020

Berenberg slashes price target on Provident Financial

(Sharecast News) - Analysts at Berenberg slashed their target price on British sub-prime lender Provident Financial from 470.0p to 250.0p on Wednesday, stating that the Covid-19 outbreak had dealt the group another setback.
The broker noted that at the beginning of 2020, Provident Financial was starting to "find its feet again", with both Financial Conduct Authority investigations being completed, the group's Consumer Credit division expecting to breakeven, Vanquis and Moneybarn adjusting to new regulations and changes to risk appetite and dividend payments resuming.

However, the German bank said Provident's cash-based home credit division would be affected by social distancing measures and lockdowns as the group's lending agents were currently unable to visit borrowers.

"The group last lost contact with its customers in 2017 when it switched to a new operating model, leading to a divisional loss of ?111m in six months, although the loan book was larger (c?400m versus ?250m). Both collections and new sales were heavily affected," said the analysts.

Also likely impacting Provident's capital position was Berenberg's assumption that the group's Vanquis and Moneybarn arms were likely to see arrears "beyond those experienced in previous economic contraction".

While Berenberg said it believes that Provident's capital position was sufficient for now, and that arrears in Vanquis and Moneybarn would be tolerable, it warned that a long period of lockdown would mean home credit incurs "significant losses".

Berenberg maintained its 'hold' recommendation on Provident.


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