M&G  

M&G sells Woodford-backed lender on dividend fears

M&G sells Woodford-backed lender on dividend fears

M&G has dumped shares in troubled consumer lending company Provident Financial after the company cancelled its planned dividend.

Provident Financial issued a severe profit warning last month and cancelled its planned dividend, sending its share price plummeting 66 per cent to a low of £5.89 on 22 August.

Three months ago, its shares stood at £29.20. This morning (12 September) they were each worth £8.28.

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M&G confirmed late yesterday that it has reduced its holding of shares in Provident Financial, but declined to add any further detail. 

However Provident retains the support of high-profile shareholders Neil Woodford and Mark Barnett.

Amid Provident's recent woes, Mr Woodford said: “Clearly, the share price should have fallen to reflect the profit warnings that we’ve seen. But I think the stock market, yet, again, has become hysterical and, yet, again, has multiplied many times the impact of all of this problem in the home credit business.”

Management at Provident decided to change the business model from an agency and led commission model to an employed sales force mode. This has resulted in about 2,000 redundancies.

"The business disruption associated with that shift had been more severe than the company had anticipated and that the powerful profits would fall by $50m (£37.8m) million in that division. That was what we found out in June,” Mr Woodford said.

“So we engaged with the company. I had a number of calls with management. We had a very long and fruitful meeting-- we thought fruitful meeting-- with the management in Oxford," the fund manager added.

"And at no stage from any of that engagement or involvement with the company did we get any sense that the problems were worse than we already knew.

"What happened subsequently is that the business disruption was even more significant than we had thought, so much so that the profits were going to fall substantially further.

"And instead, of making $60m (£45.4m), the board have now guided to losses in that division of between $80 (£60m) and $120m (£90m).”

Provident Financial is due to drop out of the FTSE 100 on 18 September, which will cause more volatility in the share price, as FTSE 100 tracker funds sell out of the stock. 

David.Thorpe@ft.com