Neil Woodford offers thoughts on Provident Financial’s profit warning

Neil Woodford Provident Financial Profit Warning

Followers of Neil Woodford will know that the fund manager is a big admirer of sub-prime lender Provident Financial (LON:PFG) (PFG.L). Indeed, as of 30th June, the stock was the fourth largest holding in both his Equity Income Fund and his Income Focus Fund, with portfolio holdings of 4.6% and 4.0% respectively.

Shares in Provident have fallen dramatically over the last two months. The stock had already been trending downwards between mid May and mid June, however, a profit warning on June 20th really sent the stock into freefall. The shares are now down around 30% since mid May.

Woodford has been quiet in relation to Provident since the profit warning, but touched on the stock in his latest portfolio update on the 14th July. Woodford stated:

“Although this is clearly not helpful, more often than not, the market over-reacts in response to bad news, even if the causes are only transitory. We believe this to be the case here – it doesn’t disrupt the long-term investment case, in our view. Although Provident Financial’s consumer credit division is normally stable and highly cash generative, the real business growth drivers exist elsewhere in the group – Vanquis Bank, Moneybarn and Satsuma all continue to perform very well. Therefore, 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.”

So clearly, Woodford is looking at Provident’s restructuring issues as a temporary problem and doesn’t think the company’s dividend will be affected. The fund manager also states in the update that he has been taking advantage of the share price weakness and adding to his position in Provident.

After paying out a dividend of 134.6p per share last year, Provident Financial now has a trailing yield of 5.97%.

Disclosure: Edward Sheldon, CFA has no position in Provident Financial. 

This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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