Bottom Line: Providential loans

PROVIDENT Financial is continuing to perform a minor miracle from its Bradford headquarters, with another sharp increase in profits - up 54 per cent before tax to pounds 62.5m - and a 47 per cent dividend rise that puts the banks in the shade.

Provident is in that least glamorous of businesses, lending small amounts of money and collecting repayments door-to-door every week. Given the high staff outlays, financing costs come to a modest 10 per cent of revenues and both charges to customers and profits are insensitive to interest rates. In any case, Provident hedges, so that last year it paid an above-market 10.5 per cent for its funds. Some borrowings for 1996 are already locked in at less than 8 per cent.

Last year 600 jobs went - down to 3,500 - and 93 branches, which now number 267. Several hundred more jobs and perhaps some branches will disappear this year.

The other half of the pounds 13m profits increase in the credit business is from a 7 per cent expansion in loans. Profits growth may not be quite as fast as in 1993, but will be substantial.

The other core business, motor insurance, has also turned in exceptional growth, with the number of policyholders up 57 per cent to 618,000 - marginally ahead of Commercial Union's private motor business - and premiums grew 80 per cent to pounds 139m. Underwriting profits doubled from pounds 4.7m to pounds 11.9m.

Provident is partly protected from the price falls in motor insurance by specialising in women drivers and third-party risks (where premiums are still rising).

The shares have fallen back from their high but are still nearly double their lowest point last year, and they weathered yesterday's market sell-off with only a 10p fall to 499p. Though another good year is likely for profits and dividends, too much hope may have been built into the shares to make them a strong buy at the moment.

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