Door-to-door lender raises profit by 34%

JOHN WILLCOCK

Financial Correspondent

Provident Financial, Britain's leading door-to-door lender, raised its interim dividend by 69 per cent on the back of rising demand and profits together with falling costs. The figures pleased the City and shares soared 67p to 715p.

The rise in profits of 34 per cent to pounds 41.1m for the six months to 30 June 1995 exceeded the City's best expectations. Lending, all of which is unsecured and to lower income groups, increased by 10 per cent. Bad debts increased by only half that percentage to pounds 20.6m.

This is in contrast to the high street banks, where personal lending remains flat.

The insurance side continued to grow, with the number of motor policyholders rising from 800,000 to 845,000. Pre-tax profits grew by 26 per cent to pounds 6.9m. John Van Kuffeler, the chief executive, said the board had decided to cut the dividend cover from 2.37 times to 1.75 times because of the company's strong cash generation. The interim payout was increased by 4.5p from 6.5p to 11p per share.

Provident also decided to change the weighting of its dividend to a 40:60 breakdown between the interim and final payouts as a result of a stronger relative improvement in the company's first half earnings.

The results sent analysts scurrying to upgrade their forecasts. Alex Robinson, of Smith New Court, was already top of the range but raised her full year profit forecast to pounds 100m from pounds 95.8m. Ms Robinson said the results were "super" and also increased her full year dividend forecast from 24p to 27.5p.

"Provident makes about pounds 30m a year in retentions (retained profits), which it really doesn't need, apart from expansion. I advised it to buy back shares, like Barclays, but this solution is a sensible answer," she said.

The company's Home Collected Credit division has 1.15 million customers throughout Britain. Profits grew by 30 per cent to pounds 36.3m on turnover 8.6 per cent higher than last time.

A typical loan is pounds 300 to pounds 400, unsecured and repaid over 12 months, with repayments collected by an army of agents calling at people's homes.

"Agents' numbers increased by 6 per cent during the first half and geographical coverage has continued to expand, taking the business into a number of new semi-rural areas while maintaining its traditional strength in the conurbations," said Provident.

Because Provident serves low income groups avoided by the banks and building societies it is able to charge interest rates of more than 100 per cent.

Provident said demand was growing "among lower income groups, which represent a growing proportion of the population".

Central costs fell from pounds 2.6m last time to pounds 2.1m, with an increased emphasis on automation and a pounds 3m investment in phone broking services.