Subprime lender Provident Financial Group (PFG), a prominent holding of UK equity income fund manager Neil Woodford, saw its shares lose more than 60% on Tuesday morning.
The company issued a profits warning, an FCA investigation into retail arm Vanquis Bank, scrapped its interim dividend, and said that chief executive Peter Crook would leave with immediate effect. The company, which sells high-interest loans and credit cards to individuals with low credit scores, has had a turbulent year, with shares falling nearly 20% in June on an earlier profit warning.
Woodford defended his investment in the lender at the time, saying: “More often than not, the market over-reacts in response to bad news, even if the causes are only transitory. We believe that Provident’s dividend is unlikely to be affected by this temporary event and the long-term attractions of the group remain very much in place.”
PFG is the fourth biggest holding in the Silver Rated CF Woodford Equity Income fund after AstraZeneca, Imperial Brands and Legal and General. Woodford first added Provident to the fund in June 2014. It makes up 4.63% of the fund.
This morning’s trading update states: “In view of the substantial deterioration in the trading performance of the home credit business, together with the uncertainty created by the FCA's investigation at Vanquis Bank, the Board has determined that the group must protect its capital base and financial flexibility by withdrawing the interim dividend declared on 25 July 2017 and indicate that a full-year dividend is unlikely.”
Provident’s shares lost £10.75 to 679p in mid-morning trading.
Last month, Woodford suffered another blow when shares in AstraZeneca (AZN), the top holding in the Equity Income Fund and a core holding of many UK equity income funds, fell 16% on the failure of initial trials for lung cancer drug Mystic.
Which Funds Hold Provident?
Woodford is not the only fund manager exposed to Provident’s downfall. Closed-end fund Jupiter European Opportunities (JEO), run by Alexander Darwall is a large shareholder, with the stock making up 5.7% of the trust.
Jupiter European Opportunities is a Morningstar Analyst Gold Rated fund, investing in Pan-European equities. Analyst David Holder says: "Darwall takes a high-conviction approach; he builds his portfolios from the bottom up, following thorough fundamental analysis, and there is a strong focus in his process on having an in-depth understanding of how a company works and on maintaining regular contact directly with its management.
"He seeks companies with proven track records, clear business plans where management acts in the interest of shareholders, evidence of entrepreneurial endeavour, above-average earnings growth prospects and superior pricing power."
Rathbone Blue Chip Income and Growth also owns the stock in the top 10 holdings, and Invesco Perpetual High Income has 3.7% in Provident.
M&G Pan European Dividend fund and M&G Dividend fund both invest in Provident, as does Aberdeen UK Equity Income.
