Provident Financial has lost two-thirds of its stock market value in a day, after the doorstep lender was hit by a “quadruple whammy” of body blows.
The company, which specialises in lending to people in financial difficulty, issued its second profit warning in two months, parted company with its chief executive and cancelled a dividend for shareholders.
It also announced that it is facing a regulatory probe by City watchdog the Financial Conduct Authority into the sale of a product that allowed people to freeze their credit card debt.
The perfect storm of bad news for investors sent shares in the sub-prime lender plummeting more than 66%, from more than £17 to 589.5p, wiping nearly £1.7bn off its stock market value.
The rapid deterioration in Provident’s performance, less than two years after it entered the FTSE 100, comes after a botched attempt to overhaul its 130-year-old business model by cutting staff numbers and ramping up its use of technology.
Its chief executive, Peter Crook, who earned £6.3m in pay and bonuses last year, stepped down with immediate effect, with Manjit Wolstenholme becoming executive chairman.
Provident, which downgraded forecasts for its consumer credit division to a profit of £60m two months ago, now expects the business to suffer losses of up to £120m in the current financial year.
The company will cancel its interim dividend – and “in all likelihood” the full-year payout in a bid an attempt to conserve cash, in a move analysts said could save about £200m.
Provident grew rapidly in the years after the financial crisis, stepping in to offer credit to people who could not secure it from banks, as they became more wary of risky lending.
Interest rates on such loans are typically high, with £100 borrowed from Provident over 13 weeks incurring a repayment of £143. The division has about £500m out on loan.
Earlier this year it announced changes to its traditional business model of sending self-employed sales agents door to door, offering loans and collecting debts.
In a move to embrace automation, Crook unveiled plans to do away with its 4,500 sales agents.
It replaced them with 2,500 full-time “customer experience managers”, who would be connected to head office via iPads, their time managed more efficiently thanks to analytical software.
The result has been a fall in its debt collection rates from 90% last year to just 57%.
Analyst Stuart Duncan of Peel Hunt said: “They’ve taken a model which was centuries old and have pretty much broken it.”
In a statement to the stock market, Provident said the software had “presented some early issues”.
Wolstenholme said this was partly down to the wrong schedules and routes being used, which meant staff ended up visiting when borrowers were not home.
She added that some of the “customer experience managers” were underperforming but that it was too early to say how. “I’ve got to work out why the hell that’s happening,” she said.
She insisted that Provident would not abandon the strategy of employing full-time staff, which she said would make it easier to comply with regulations in the long term. But she conceded that the software used to direct those staff might have to be “tweaked”.
“We seem to have lost something along the way in trying to be a bit too automated about it,” she added. “We had a good business and we need to make sure we get back there.”
The company also admitted that its Vanquis Bank division is being investigated by the Financial Conduct Authority over the sale of repayment option plans (ROP), a product that helps people freeze credit card debt.
The investigation relates to sales made between April 2014 and April 2016. Provident has agreed to suspend the sale of ROPs, which were worth £70m a year in revenues.
Analysts at RBC Capital Markets called the string of negative announcements a “quadruple whammy” as Provident’s share price nosedived.
Peel Hunt’s Stuart Duncan said the company did not seem to be in imminent danger of collapse, but warned it could face problems if Vanquis Bank customers start withdrawing deposits.
“If they read that Provident or Vanquis is in trouble, it will be interesting to see how the deposit base behaves over the next few years.”