UK public finances expected to improve in July – business live

Tax receipts are set to help government borrowing figures, with CBI industrial trends and German confidence survey also due

  • Provident Financial boss leaves after profit warning and FCA investigation
  • Persimmon shrugs off Brexit concerns

Provident Financial shares are now down 53%. Neil Wilson, senior market analyst at ETX Capital, said:

Hedge funds that built up short positions in Provident Financial made the right call after another, much bigger, warning has rattled investors and sunk the stock. Provident shares, already down 45% since May, tumbled another 43% on the open, on course for one of the biggest ever one-day falls for a FTSE 100 stock.

A catastrophic share price drop in a subprime lender – it’s like the last ten years never happened. Is this a Northern Rock moment? Probably not – this is more about management failings than a market-wide issue: rivals are taking market share.

As expected, European investors are in a brighter mood.

Despite the collapse in Provident Financial – 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 Financial 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.

The chief executive of Provident Financial. 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.

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.

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.

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.

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.

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% although the Nikkei is virtually unchanged, down 0.05%. Europe is expected to adopt the positive trend:

Our European opening calls:$FTSE 7346 up 27
$DAX 12101 up 35
$CAC 5098 up 11$IBEX 10384 up 24$MIB 21772 up 19

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.

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.

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..

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Author : Nick Fletcher

Publish date : 22 August 2017 | 7:29 am

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