The Investment Column: Provident Financial is uncertain bet

Greene King; Asos
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The Independent Online

Our view: Avoid

Share price: 621p (+7.5p)

Provident Financial, the doorstep lender, has had a rough time over the past 12 months. With the UK consumer credit bubble finally reaching its inevitable climax in 2004, the group has not only struggled to grow its core domestic business over the past year, but has seen its second-hand car business, Yes Car Credit, collapser.

Add this to a Competition Commission inquiry into the UK home credit market - which at worst threatens to impose price caps on companies like Provident - and it is not hard to see why its share price has been on a downward trend.

The jewel in the company's crown, however, has been its international operations. Provident Financial specialises in lending to people who struggle to get credit through traditional means, and this is a market which remains relatively undeveloped in regions such as eastern Europe and Latin America.

The group already has a strong customer base in these developing regions, and conceded yesterday that it is considering expansion into the likes of Russia, Brazil and India.

The grand plan is to then spin off the international business next spring, giving it the chance to grow quicker.

Although opinions remain divided as to whether this will provide the solution to Provident's woes, yesterday's news that the company's key Polish business had been struggling for the first time did not inspire confidence.

Back home, costs have been rising, both from marketing and from the start-up of Vanquis Bank - where losses are expected to come in higher than expected this year.

Since we advised investors to sell this stock 15 months ago, the shares have fallen more than 13 per cent, and we believe there will still be better times to buy.

A healthy yield of more than 5 per cent is the one good reason why shareholders who have held on so far should stay put. But for new investors, there are still far too many uncertainties in the mix. Avoid.

Greene King

Our view: Buy

Share price: 825p (-5p)

Predictably, Greene King has done well out of the World Cup after installing 460 extra televisions screens across its pubs since January. Even though England are now out of the tournament, the company expects fans to flood back to its 2,100 pubs for today's semi-final and the final on Sunday.

More of a surprise was yesterday's news that its performance in Scotland, where it acquired Belhaven last year, was also holding up in spite of the smoking ban which began in March. Like-for-like sales there were down 2.2 per cent in the past eight weeks, as strong food sales partly made up for a big drop in income from fruit machines. The chief executive Rooney Anand says the group is looking at alternative high-margin sources of revenues such as ATMs and telephone-card vending machines. But food is the big focus, with more people eating out than ever before. Greene King is trying to tap into that demand with new menus and has started serving up pizzas, hot dogs and tapas till later in the evening, to take advantage of the extended pub opening hours.

Last month Hardys & Hansons became the latest regional brewer to be gobbled up by Greene King, which has successfully integrated a string of acquisitions in the last couple of years.

The company posted a 25 per cent rise in pre-tax profits to last year, with revenues up 16 per cent. Its mix of managed houses, tenancies and brewing (Old Speckled Hen, IPA) and geographic spread means it should keep growing, though next year's smoking ban in England poses risks. Nevertheless, we still believe the stock is worth buying.


Our view: Avoid

Share price: 94.5p (-3.5p)

If Asos, the online retailer that sells copycat celebrity fashions, was one of the dresses that it sells, it would be verging on a size zero. Yet when it comes to its profile, we're talking serious plus sizing. punches above its weight in the fashion cybersphere, second only to Next in terms of the number of hits it receives.

Final results yesterday showed investors escaped being burned by the Buncefield fire - which wiped out Asos's headquarters - although the company is still waiting on a slug of its insurance claim. The good news is that customers were not put off by the disruption to Asos's trading, which all but wiped out Christmas. Despite the loss of sales, turnover still rose 39 per cent and profit before tax by 61 per cent.

So far, so good. But it will be as Asos attempts to bulk up that the problems come. The costs of being bigger, from more expensive head office and warehousing bills, will hold profits back until sales can fully compensate. This column has been overly negative on Asos in the past. Yet with its shares trading at a size 20 premium to the retail sector, now is no time to turn positive. Avoid.