(qlmbusinessnews.com via cityam.com – – Tue, 27 Feb 2018) London, Uk – –
Shares in Provident Financial jumped almost 90 per cent this morning, after the company unveiled its results for the year and confirmed a rights issue.
The company's shares were knocked down to a 22-year low yesterday on reports bankers were eyeing a £500m rights issue, however, today the doorstep lender said it would seek to raise £331m.
Side show
The results themselves were slightly better than expected at an adjusted pre-tax level, said Shore Capital's Gary Greenwood. However, he added: “These are a side show relative to the announcement of a settlement with the FCA in respect of its investigation into ROP (repayment option plan), for which a £172m provision has been made, along with an additional £20m to cover anticipated costs associated with the FCA’s investigation into Moneybarn. These are less than we had feared.
“To cover these and other costs, and restore the capital base, the group has also announced a £331m rights issue which is smaller than the £500m that had been trailed in the media. Finally, the group has announced that dividend payments will be resumed in 2018. As such, we expect the shares to react very positively to this news along with the removal of a key uncertainty.”
David Buik at Core Spreads also noted “the fact that PF only needed financial help to the tune of £300 million rather than an expected £500m, pleased the market”.
Uncertainty removed
Stuart Duncan at Peel Hunt said that while it will take some time to work through the detail of the announcements this morning, overall they are positive.
“The major uncertainty has been removed (ROP) and restoring balance sheet strength (while also adjusting debt covenants) moves the discussion towards the group’s future potential,” he said.
Better than expected
And Neil Wilson 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. 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.
“Despite all the concerns management is confident that this cash call, combined with drawing a line under the FCA’s investigations, puts it in a strong enough position to resume a progressive dividend policy in 2019.”
By Caitlin Morrison
