Star fund manager Neil Woodford is nursing huge losses after a spectacular profits warning – Provident Financial’s second in two months.
The sub-prime lenders’ beleaguered boss Peter Crook has resigned as the market announced full-year losses are now expected in the range of £80 million and £120 million. In addition, Provident pulled the interim dividend of 43.2p it declared only last month. And, as the group looks to protect its capital base and financial flexibility, it has also indicated that a full-year pay-out is unlikely.
Shares in the FTSE 100 (UKX) stock, which was once worth more than £4 billion, dived by 68% to just 549p (at 1pm on 22 August), lower than at any time since the start of 1999.
Where does today's warning leave Mr Woodford, whose Equity Income fund – a Moneywise First 50 Fund for beginner investors – and Income Focus fund took advantage of the recent share price slump to top up their Provident exposure?
By 27 July, Mr Woodford's funds held 19.9% of the company. On 23 August, that holding was worth over £500 million. On 24 August it was valued at just £185 million. In the wake of Provident's first profits warning, the fund manager called the company's difficulties a temporary event and that the long-term attractions "remain very much in place".
He adds: "More often than not, the market over-reacts in response to bad news, even if the causes are only transitory. We believe this to be the case here - it doesn't disrupt the long-term investment case, in our view."
He points to the real business growth drivers of the group being Vanquis Bank, vehicle finance specialist Moneybarn and online instalment loans business Satsuma.
Provident says that protecting these "highly valuable franchises", which continue to perform to plan, is the priority for the group whilst it continues to work on the turnaround of the home credit business.
However, in a further blow to the business, Provident revealed that the Financial Conduct Authority is investigating Vanquis Bank's Repayment Option Plan, which currently generates top-line revenues of £70 million a year.
Vanquis, which offers credit cards for people with poor credit history, recently grew half-year profits to just over £100 million.
Smaller rivals Non-Standard Finance (NSF) and Morses Club (MCL), are both likely to have capitalised on Provident's doorstep woes by recruiting former Provident agents and taking market share in areas where Provident agencies have been vacated.
The disruption caused by the overhaul has not just impacted on Provident's rate of collections, it has made it harder to sell to existing customers and to keep them on the books.
The task of reversing this trend will fall to Manjit Wolstenholme, executive chairman, who will lead the business following the departure of Mr Crook.
This article was written by Graeme Evans and originally appeared on our sister website Interactive Investor.