View from City Road: Provident sticks to what it knows

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COLLECTING pounds 5-a-week loan repayments door to door on council estates in the longest recession since the 1930s sounds an invitation to take a financial knock, if nothing worse.

Bradford-based Provident Financial not only collected the money last year, but also raised the operating contribution from the firm's weekly collected credit business by 18 per cent, to pounds 45.7m. With a turnaround elsewhere in the group, this raised pre-tax profits 30 per cent to pounds 44.5m.

John van Kuffeler, the chief executive who has spruced up Provident, says unemployment has a neutral effect on the business. When customers lose their jobs in a closure such as the Ravenscraig steelworks they tend to use redundancy money to repay debt, since they lose state benefits if they have too much cash.

The annual percentage rate Provident charges is astronomic. The company's justification is that the cost of money is a small part of the input to a labour-intensive weekly collection business. In any case, high APRs do not seem to hinder growth. While margins were steady, loans grew 7 per cent last year.

More than half the 18 per cent profits rise in the credit business came from cost savings through branch closures - down 40 to 360 - and staff cuts of about 1,300. Bad debts rose slightly but arrears levelled after a sharp rise in 1991. There is no rolled-up interest on late payment.

The solid results from this business confirm the sense of Mr van Kuffeler's strategy of making the group stick to what it knows best. The Peoples Bank subsidiary was sold yesterday to Secure Trust for pounds 4.8m, bringing the disposal total to pounds 36m (and a book profit of pounds 2.3m, which turns into a pounds 1.9m loss through a write-back of goodwill required by new accounting rules).

The insurance business, including a speciality of marketing motor policies to women drivers, is being kept. It turned in a pounds 5.4m profit after a pounds 0.9m loss in 1991.

The company's fans have driven the price up by more than half since last summer. They were not disappointed by a 14 per cent full-year dividend rise and the shares rose 20p to 794p. Provident's earnings and dividends certainly have further to go as the economy recovers, but the dramatic share price gains have already been made.