European markets open higher
As expected, European investors are in a brighter mood.
Despite the collapse in Provident Finance – now down 45% – the FTSE 100 is up 0.6%. Germany’s Dax has added 0.8%, France’s Cac has climbed 0.5% and Spain’s Ibex is up 0.7%.
Unsurprisingly, Provident Finance shares have tanked, falling 44% in early trading.
The company, which joined the FTSE 100 in December 2015, is the biggest loser in the leading index.
Provident Finance boss leaves after profit warning
The chief executive of Provident Finance. Peter Crook, is leaving after the UK lender issued its second profit warning in two months and said it would not pay a dividend this year as well as cancelling a previously promised payout.
It also announced its Vanquis Bank was being investigated by the Financial Conduct Authority over its repayment option plan. It said:
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.
The company has been struggling to reorganise its door-to-door subprime lending business, warning in June that its profit would fall as it struggles to switch from using self-employed debt collection agents to employees on its payroll.
Provident Financial, which provides credit to people who do not meet the loan criteria of mainstream banks, billed the reorganisation as a way to create a more efficient and effective home credit business. But it has found it harder than expected to recruit agents.
The firm said on Tuesday the rate of progress being made in the turnaround of the home credit unit is “too weak” and that the business is now falling a long way short of achieving the objectives set out.
Collections performance and sales are both substantially underperforming against last year, Provident Financial said, adding that the pre-exceptional loss for the business is now likely to be in a range of £80m to £120m.
“In response, a thorough and rapid review of home credit’s performance is underway to secure the turnaround of the business,” the company said.
Manjit Wolstenholme will assume the role of executive chairman as Crook departs.
Analyst Peter Lenardos at RBC Europe said:
While Provident is down nearly 40% year-to-date, we expect ongoing substantial losses in the share price, and would not be buyers at any price. While the share correction was making us warm to Provident, this quadruple whammy (another profit warning, no dividend, FCA investigation and CEO departure) lead us to now believe that the shares are not investible until greater clarity is received, which may not be until next year at the earliest.
The FCA is also investigating the group’s ROP product (Provident’s version of PPI) and should they have to repay all of the premiums as the banks have done it could question the viability of the group.
Persimmon shrugs off Brexit concerns
Not much in the way of corporate news, but we do have figures from the UK housebuilder Persimmon. My colleague Julia Kollewe reports:
Persimmon, one of Britain’s biggest housebuilders, says it has fared better than expected since last year’s Brexit vote, and is looking forward to a good autumn sales season. It posted a 30% rise in profit before tax to £457.4m in the first six months of the year.
The company built 556 more homes than in the same period last year – a total of 7,794 homes, up 8% – and raised its average selling price by 4% to £213,262. The sales price for its upmarket Charles Church brand rose by 9.4% to £347,819.
Chief executive Jeff Fairburn said:
Through the second half of 2016, the group experienced stronger market conditions than expected post the EU referendum on 23 June 2016, particularly through the traditionally slower summer weeks. Against these stronger comparatives, customer interest over the last seven weeks from 1 July has remained robust and our average weekly private sales rate per site was 2% ahead of the same period last year.
Analyst Anthony Codling at Jefferies said:
A very strong, sector-leading performance from Persimmon in the first half, delivering operating margin growth of 380 basis points to 27.6%. In our view, Help to Buy is acting as a bulletproof vest for the new-build sector allowing it to ride above the challenges faced by the secondhand market, with Persimmon continuing to balance the markets appetite more new homes with investors’ desires for higher cash returns.
European markets set to open higher
After a pretty gloomy day for European markets on Monday – in keeping with the weather – the prospects for today are looking a little brighter.
A slight recovery on Wall Street – helped by further weakness in the dollar – has given a bit of a lift to sentiment. In Asia the Hang Seng has climbed 1% while the Nikkei is virtually unchanged. Europe is expected to follow suit:
But the concerns troubling investors have not gone away. Tensions between the US and North Korea have not gone away, the turmoil at the White House continues, and there is also nervousness ahead of the Jackson Hole meeting of central bankers later in the week.
Agenda: UK public finances and German confidence figures due
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
A slightly busier day today after a relatively quiet Monday, with UK public finances the main focus. The July figure is expected to show an improvement on the previous month’s number, which showed the government borrowing a higher-than-expected £6.9bn. Helped by tax receipts, last month’s rise in borrowing is expected to be just £1bn. Economists at RBC said:
July is a seasonally strong month for government tax receipts as corporation tax instalments are paid as well as a second wave of self-assessment liabilities being settled by individuals.
Therefore, the cumulative deficit for 2017-18 is only expected to expand by £1bn (PSNB ex banking groups measure) to a total of just over £27bn. The full-year target for the deficit is £58.3bn. Revisions to the target are likely in the Budget later in the year.
Paul Hollingsworth at Capital Economics said:
The public finance figures should show that borrowing fell a little on the year in July… Although the economy slowed in the first quarter, corporate profitability has remained strong.
Later come the CBI industrial trends survey and the latest German confidence figures, which are expected to show a fall from 17.5 to around 14.8.
On the CBI figures, Michael Hewson of CMC Markets said:
An extremely positive number in July boosted confidence in the manufacturing sector, and showed output growing at its fastest rate since the mid 1990s. August is expected to show a slight slowdown to 8 from 10 in July, but nonetheless is expected to largely sustain the positive trend seen a month ago..
9.30 BST UK public finances (July)
10.00 BST German ZEW confidence survey (August)
11.00 BST CBI industrial trends (August)