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Barclays has downgraded doorstep lender Provident Financial (PFG) as it can see no reason for the recent share price recovery.
Analyst Toni Dang downgraded her recommendation from ‘equal weight’ to ‘underweight’ and reduced the target price from 600p to 584p. The shares fell 4.6% to 797.8p yesterday.
‘Provident Financial shares are down 68% year-to-date, falling 66% on the day of the second profit warning on 22 August. However, the shares have recovered by 42% from the trough, despite no new guidance on the consumer credit division or resolution of the Financial Conduct Authority’s (FCA) investigation into Vanquis’ repayment option plan product,’ she said.
Dang said she was ‘cautious on the shares’ due to her lack of confidence in a turnaround of the home credit business and ‘the unquantifiable size of potential FCA redress’.
‘We perceive further tail risks of Provident Financial not being able to meet its October 2019 debt obligation,’ she said. ‘These assumptions are not baked into our base case but we believe could have a meaningful impact on earnings and cost of funding.’