Provident Financial - Woodford, Barnett & Darwall

Glen_Clark

This has been predicted for some time because Provident was heavily shorted. I wouldn't buy Provident just because it looks cheap. I would need to have some idea how its going to restore its profitability.
All I know is from watching a few TV programmes about baliffs. Which tells me the housing crisis has left many people spending most of their income on rent, and borrowing to cover living expenses. They are presumably borrowing from the likes of Provident because if they had security they could borrow cheaper from a bank. It seems obvious these loans will never be repaid. Unless I am missing something here?
PS: I realise Provident was profitable in the past. But that was before its core customers had to spend most of their income on rent. And paying the rent to keep a roof over their heads is presumably going to take priority over paying Provident.

Nebulous2

Glen_Clark wrote: »

All I know is from watching a few TV programmes about baliffs. Which tells me the housing crisis has left many people spending most of their income on rent, and borrowing to cover living expenses. They are presumably borrowing from the likes of Provident because if they had security they could borrow cheaper from a bank. It seems obvious these loans will never be repaid. Unless I am missing something here?
PS: I realise Provident was profitable in the past. But that was before its core customers had to spend most of their income on rent. And paying the rent to keep a roof over their heads is presumably going to take priority over paying Provident.

The change in collection methods could be masking a turnaround in the whole market for consumer debt. Zopa gave a warning to lenders yesterday about higher default rates. As Provident are dealing with people who have chequered histories it will hit them harder / faster. All those bank of England warnings could well have been timely. .

Glen_Clark

Nebulous2 wrote: »

The change in collection methods could be masking a turnaround in the whole market for consumer debt. Zopa gave a warning to lenders yesterday about higher default rates. As Provident are dealing with people who have chequered histories it will hit them harder / faster. All those bank of England warnings could well have been timely. .

Those are my thoughts too.
But when I saw Woodford investing I wondered if he had seen something I hadn't?
Or has his personal income made him too far above Provident customers to comprehend their situation?

Malthusian

Glen_Clark wrote: »

Or has his personal income made him too far above Provident customers to comprehend their situation?

Whereas all the fund managers who didn't bash the wine gums on Provident Financial have the touch of the common man and get paid minimum wage? That's a bit of a stretch.

AnotherJoe wrote: »

I disagree, that we wouldn't have been inside knowledge, just his opinion. Still problematic to sell huge amounts without affecting the price but it obviously wouldn't have been on the scale as what's happened now.

My point is that if you expect the star fund manager to spot that Provident Financial's shares were going to tank before the rest of the market, "just his opinion" isn't good enough. If it's "just his opinion" then selling all his shares is just a gamble which could save a great deal of money or lose out on future gains - with the expected return from that gamble being nil, minus the cost of selling the shares.

Glen_Clark

Malthusian wrote: »

Whereas all the fund managers who didn't bash the wine gums on Provident Financial have the touch of the common man and get paid minimum wage? That's a bit of a stretch.

Well it would be a bit of a stretch if that was what I said.
But I didn't say that.
You just made it up.

Glen_Clark

digannio wrote: »

Not sure investors know quite what to make of the whole Provident situation. A glance at some of the significant trades in the company late in the day today reveal one sale worth £2.5 million, one buy of £3.9m, another sale of a quarter of a million quid and two buys of a similar amount. Wonder who's got it right!

Could be short sellers covering their positions.
They may have to buy even if they think it will fall further.

HardCoreProgrammer

Glen Clark, if what you say is correct, then this is not a good time to put new money into peer lending sites (e.g. Zopa) either.
I wonder how this will play out, noting that there were crashes in the market in 1997, 2007, and it is now 2017!
I got about half my investments out when FTSE was 7500+ earlier this month. I suppose the only safe place is gold now?

Sally57

Glen_Clark wrote: »

This has been predicted for some time because Provident was heavily shorted. I wouldn't buy Provident just because it looks cheap. I would need to have some idea how its going to restore its profitability.
All I know is from watching a few TV programmes about baliffs. Which tells me the housing crisis has left many people spending most of their income on rent, and borrowing to cover living expenses. They are presumably borrowing from the likes of Provident because if they had security they could borrow cheaper from a bank. It seems obvious these loans will never be repaid. Unless I am missing something here?
PS: I realise Provident was profitable in the past. But that was before its core customers had to spend most of their income on rent. And paying the rent to keep a roof over their heads is presumably going to take priority over paying Provident.

I totally agree with you on this but I would add that I don't think it's just Woodford because as I mentioned in my OP there are other star managers such as Mark Barnett at IP and Alexander Darwall at Jupiter that are also in the same position. Although I believe Woodford & Barnett hold 40% of the entire company which is huge and that's why I feel they should be in a position to query the structure of the business especially with the warning signs.

aroominyork

At least one fund manager got it right: this is from Keith Ashworth-Lord’s August 2017 factsheet for his UK Buffettology Fund “…Provident Financial, where the change of operating model at home collected credit is extracting an awful toll on agent attrition, short-term impairment and profitability. I fear that this may continue and I doubt the wisdom of replacing self-employed collectors, who know their clients intimately, with professionally employed staff. Changing a business model that has stood the test of time since 1880 does not seem sensible to me unless it has been forced on the company by the regulator, which the company has not suggested. By the time you read this commentary, we will have liquidated our holding in Provident Financial.”

Glen_Clark

aroominyork wrote: »

Changing a business model that has stood the test of time since 1880 does not seem sensible to me unless it has been forced on the company by the regulator....”

Ever since QE the banks have been throwing money at anyone who is creditworthy. So the likes of Provident have been saddled with the bad risks - like those who are spending most of their income on rent and borrowing, not for one off purchases, but for living expenses.
Perhaps the self employed agents were therefore failing to collect debts, for which they were wrongfully blamed by the company, and replaced with employees who face the same problem?