Sub-prime lender Provident Financial saw shares come under pressure yesterday after saying the UK Government’s spending cuts could affect its market.
The firm said the potential for soaring job losses from the UK austerity drive posed a risk to consumer appetite for home credit, with a weak employment market already tempering demand.
Provident’s shares fell 7% to 821p as interim figures also missed some analyst forecasts. The group reported pre-tax profits of £54million for the first half of 2010, up 2% year-on-year but below the forecasts of two leading analysts.
Provident, which also owns Vanquis Bank, said it was encouraged by a 5.4% lift in home credit customer numbers, but confirmed trading conditions remained difficult and could get worse as public-sector costs were slashed.
It said: “Demand for home credit continues to reflect cautious behaviour from some customers in the context of an employment market, which is unlikely to change in the near future.
“The group is also mindful of the potential for unemployment to increase as a result of the government’s fiscal austerity programme.”
The firm is cutting costs to help boost profits, revealing earlier this year that more than 180 jobs had been shed as part of cost savings.
Provident cut 95 jobs after abandoning plans for a separate direct repayment loan business called Real Personal Finance, following a pilot last year. A further 90 jobs were also cut from its 900-strong head office workforce in Bradford to save costs.
Robin Savage, analyst at Collins Stewart, said the firm was vulnerable to austerity measures and downgraded its rating to “sell”. He added that Provident may reduce home lending further in the second half as it continued to tighten lending criteria.
Impairments are still on the rise at the group, with provision for bad debts up 12.8% within the home credit arm and up 17.3% at Vanquis. Despite this, Provident said Vanquis had a strong first half, with an 82% rise in pre-tax profits to £9.1million.