Provident Financial, the door step lending company, has seen its shares jump on news 'receivables' for 2011 - that is money it expects to get back from borrowers - will be marginally ahead of 2010.
It says customer numbers have dropped 2% as a result of tighter underwriting during the last 12 months as well as cautious behaviour on the part of customers.
Provident also says the people who collect payments have been performing better on the back of a new commission scheme begun in April. This is responsible for a fall in the level of impairments (customer debts Provident has to write off).
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Vanquis Bank, Provident's credit card arm for 'non-standard' (e.g. risky) customers is on track to fund 80% of its book with its own retail deposits.
The board says Provident has £290m headroom on its credit facilities, which together with the retail deposit programme at Vanquis Bank, is sufficient to fund maturities and growth into 2013.
Commenting, Provident Financial's Chief Executive, Peter Crook, said: "I am pleased to report that the group had a good finish to 2011 and expects to report results in line with market expectations. The retail deposits programme at Vanquis Bank is now fully established and, most importantly, the credit quality of both businesses is strong as we enter 2012."
Peel Hunt said Provident had put in a robust performance, and the stock remains a top pick in the sector, so far as as the broker is concerned.
Peel Hunt's Stuart Duncan was particularly impressed by the growth achieved by Vanquis.
"The division continues to grow impressively with customer numbers up 27%, average receivables up 35% and delinquency levels remaining at record lows for the business. In particular, the risk-adjusted margin at 35% has remained above our expectation (32%) and, given the economic and competitive backdrop looks likely to remain stronger for longer," Duncan enthused.
Duncan still has to crunch the numbers but he hinted that the growth being shown in Vanquis offere scope to nudge up his 2012 pre-tax profit and earnings per share forecasts.
"Prior to this announcement, we had forecast customer number growth of c15% and growth in average receivables of 17.5%, both of which seem conservative in light of this announcement. We forecast a rising stream of dividends over the coming years," Duncan added.
Peel Hunt has a price target of 1220p for Provident and rates the shares a "buy".
"The defensive qualities of a small-sum, short-duration loan book and the growth potential in Vanquis in our view warrant a higher valuation than the market is currently ascribing," the broker concluded.
Provident Financial shares were up 5.5% at 12:38pm. Over the last 12 months the stock has gained 10.3%
BS
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
