A worrying update

Provident is a financial services firm that provides credit facilities to individuals who are considered too risky for mainstream lenders. It currently serves more than 2.2 million customers in the UK under multiple brands. These include Vanquis Bank, Moneybarn, and Satsuma Loans.

Last week, the company revealed its latest figures, which looked fine on the surface, considering the disruptions caused by Covid-19. However, a worrying announcement was made regarding its consumer credit division (CCD).

The management team intends to enter its CCD into a Scheme of Arrangement following a significant rise in customer complaints and claims. These rising complaints have led the Financial Conduct Authority (FCA) to launch an enforcement investigation focusing on the affordability and sustainability of lending to sub-prime customers.

The Scheme of Arrangement is a court-approved measure that allows a company to restructure its capital, assets or liabilities. Assuming the FCA approves the scheme, the company will fund £50m of claims and cover up to £15m of related costs. This will ultimately ensure all legitimate claims are satisfied and provide certainty for stakeholders.

However, if the FCA decides to reject the proposal, the management team has stated that it’s CCD (which includes Satsuma Loans) will go into administration. Given this segment represents nearly 30% of revenue generation, I feel the recent drop in this FTSE 250 stock’s share price makes perfect sense. But is there an opportunity for a turnaround here? 

A FTSE 250 opportunity for growth?

Despite its CCD problems, the company is still collecting around 90% of its loans on time. Meanwhile, Provident’s other divisions appear to be recovering from the pandemic’s impact relatively well.

Vanquis Bank saw a 28% year-on-year reduction in receivables. But quarterly performance shows that it has begun returning to pre-pandemic levels at an accelerating pace. What’s more, due to reduced impairment costs, overall profitability for the segment has improved significantly. At the same time, Moneybarn, its car loan service, continued to grow receivables by 13%, in line with expectations.

It’s also worth noting that all of Provident’s segments are independent entities. In other words, if CCD were to shut down, the direct adverse effects on Vanquis Bank and Moneybarn will most likely be negligible.

The bottom line: a stock to buy now?

The investigation and potential closure of Provident’s CCD don’t inspire me with a lot of confidence, even with its other operations performing relatively well.

The surge in claims and complaints has undoubtedly damaged the firm’s reputation. And while there may not be any direct impact on its other segments, if CCD goes into administration, the firm’s relationships with its customers, creditors, and regulators will likely be permanently damaged. At least that’s what I think.

Personally, I believe there are far better investment opportunities out there in the FTSE 250. And so I won’t be adding this stock to my portfolio today.

The post Should I buy this FTSE 250 stock after its 25% price crash? appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Provident Financial. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

You can get a higher return from FTSE 250 stocks, some of which currently offer dividend yields approaching 10%. Today, I’m going to take a look at three such companies, all of which support dividend yields of around 7%. 

Global champion

Despite regulators’ crackdown on some of the company’s most profitable trading products, shares in financial services group IG (LSE: IGG) have remained a solid investment.

Following the crackdown on CFD and Binary options trading, the group’s earnings declined 30% in fiscal 2019. City analysts expect the pain to continue into the current financial year as well.

However, analysts are also forecasting a return to growth in fiscal 2021, as the company re-focuses its efforts on growth in emerging markets and high-margin clients. 

According to analysts projections, this growth should safeguard IG’s dividend, which is not currently covered by earnings per share. Still, a robust net cash balance of £309m at the end of fiscal 2019, tells me the company has the resources to maintain its 6.6% dividend yield for around two years before it runs out of cash. 

At the time of writing, the stock is trading at a forward P/E of 16.7, falling to 14.9 for 2021 as growth returns. 

Undervalued opportunity

Another FTSE 250 dividend champion I think is worth considering is insurance group Hastings (LSE: HSTG). Shares in this business have come under pressure recently following a warning about claims inflation.

It’s costing more to repair cars after accidents, and this is having an impact on the group’s bottom line. As a result, management believes the company’s loss ratio — the amount an insurer spends on claims compared to how much it earns on premiums — may move above a target range of 75-79%.

This warning’s disappointing, but I’m optimistic about the company’s long term prospects. Insurance is a cyclical business, so if claims costs are rising, it shouldn’t be long before premiums do as well. That should help Hastings return to growth. 

It looks as if it could be an excellent time to take advantage of the company’s recent problems. Shares in the group are trading at a 2020 P/E of 10.3 and yield 7.3%. I reckon that’s a price worth paying for this up-and-coming insurance firm.

Turnaround incoming 

The third FTSE 250 income champion I’m going to profile is Provident Financial (LSE: PFG). Like the other businesses in this article, Provident has fallen on hard times. Still, I believe that this could be an excellent opportunity to snap up the undervalued stock as the company makes a recovery.

Since 2017, the doorstep lender has struggled to attract customers. But in the third quarter of this year, the group reported a 6% rise in new and returning customers. According to management, this momentum will continue throughout the rest of 2019, which should stabilise the business. 

If management’s forecasts come to fruition, City analysts expect earnings to return to growth in fiscal 2020 too. Based on these targets, the stock is dealing at a forward P/E of just 8.2 and analysts have also pencilled in a prospective dividend yield of 7.4% for 2020. These numbers show if Provident’s recovery gathers steam, investors could be well rewarded.

The post Forget the Cash ISA! I like these 3 FTSE 250 dividend champions yielding 7% appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Woodford may have been squeezed out, but most of those companies are still trading, and two have seen their share prices rise around 4% today, after their latest results. Is their future now brighter than his?

PurpleBricks Group

Woodford held onto online estate agency PurpleBricks Group (LSE: PURP) well after the cracks began to show, following its ill-fated foray into the US.

The PurpleBricks share price is now down 70% measured over two years, helped by the fire sale of one of Woodford’s more liquid stocks. However, it’s up today following a reasonably positive first-half trading update reported it had “modestly outperformed expectations over the period.”

The £346m group has maintained its 4% overall market share, and expects to report an improvement in marketing-to-revenue ratio as planned efficiencies are now being realised. That’s despite “a weakening in the overall UK property market as political and economic uncertainty impacted confidence, reducing home sale volumes,” particularly in the South East.

PurpleBricks expects revenues to be broadly flat in next month’s interims, but at least recent significant losses have been reversed, with the group enjoying profitable trading in the first half.

However, I remain wary. PurpleBricks was supposed to be a game changer, sweeping away the traditional high street estate agency model, rather than a company where flat revenues are seen as good news.

You have to strip away all the early aura before deciding whether to invest, as well as examine underlying issues, such as how its flat fee system of payment works in practice. The group has stabilised, but it’s real attraction was rapid growth, and I don’t see that coming.

Provident Financial

I never saw why the phrase ‘doorstep lender’ got Woodford’s juices flowing. He went massive on Provident Financial (LSE: PFG), a company launched by Bradford Methodists in the 1880s that ended up as a short-term lender run by a man called Peter Crook charging up to 1,550% on short-term loans to people who struggled to borrow elsewhere. It also sells high-interest Vanquis credit cards, payday loans and car finance through its Moneybarn brand.

The short-term credit market has come under pressure from City watchdog the Financial Conduct Authority, whose tough compensation rules have driven out payday lenders Wonga and QuickQuid. Last year, the FCA ordered Provident’s Vanquis unit to repay £169m to mis-sold customers, and also fined it £2m.

Today, the £1.15bn group reported “good momentum in new customer volumes and stable delinquency,” with “all three divisions producing good business volumes and a stable impairment performance.” Moneybarn did particularly well, with new business volumes beating internal forecasts to rise 36%, and client numbers up 24% to 73,000.

This will reassure some investors that management has put the bulk of its problems to bed, and the forecast yield of 5.7%, covered 1.9 times, and a valuation of 9.1 times earnings, may tempt some. Just remember, the FCA is watching.

The post These 2 Neil Woodford falling knives are climbing today. Here’s what I’d do now appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The £250m market cap financial services business has an excellent dividend track record. The payout has increased by an average of 6% per annum since 2013, rising from 62p to 83p per share today.

And City analysts don’t expect this trend to come to an end any time soon. They believe the payout will grow by an inflation-busting 4% to 86.2p this year and a further 4.3% in 2020 to just under 90p per share. If the company meets these targets, then the stock will yield an estimated 6.7% by 2020, with the payout covered an estimated 2.3 times by earnings per share. 

Cheap stock

In my opinion, this dividend track record deserves a premium valuation. However, the market seems to be overlooking the opportunity here. At the time of writing, shares in Secure trade at a forward P/E of just 7.6, despite the fact analysts believe the group’s earnings per share will jump 17% this year and a further 19% in 2020. 

However, according to the financial group’s first-half results to the end of June, adjusted earnings per share increased ‘only’ 10.2% year-on-year. Adjusted operating profit (profit before the impact of one-off gains or losses) before tax jumped 13.9%. Statutory profit before tax, which includes one-time gains and losses achieved by the company during the half, increased 19.9% to £18.1m

These results indicate that the company’s growth for the full year might come in below City expectations, but it doesn’t look as if analysts are that far off the mark.

As well as the firm’s double-digit earnings growth, it also has a healthy balance sheet with a common equity tier 1 ratio of 12.8% and a capital ratio of 15.2%.

So, if you are looking to invest in a well-capitalised, undervalued and fast-growing business with a dividend yield of 6%, I highly recommend taking a closer look at Secure. 

Mission complete?

Another financial group with a market-leading dividend yield that I would consider adding to my stocks and shares ISA today is Provident Financial (LSE: PFG).

Provident has had a series of problems over the past few years, both self-inflicted and regulatory. However, it looks as if management has finally managed to put the bulk of these issues to bed.

Earlier this year, Provident reported full-year profits slightly ahead of analysts’ expectations and restored its dividend. The sub-prime lender also said it had resolved most of its regulatory problems. 

Analysts are not forecasting a complete earnings recovery for the firm just yet, but they are forecasting explosive dividend growth for the next two years.

From a token payout of 10p in 2018 (down from nearly 100p per share in 2016) the City has pencilled in a dividend payout of 26p for 2019, rising to 35p for 2020. Only time will tell if the company has what it takes to hit these forecasts, but I think the risk is worth taking.

Based on current earnings projections, the stock is trading at a P/E of just 7.8, falling to 6.5 for 2020. What’s more, analysts’ current dividend outlook suggests investors are in line for a yield of 6.9% for 2019. In my view, this potential reward more than outweighs the risk of investing. 

The post I’d buy these two 6%+ yielders for my Stocks and Shares ISA today appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

High drama

Over the last couple of years, Provident Financial’s shareholders have witnessed a catalogue of unwelcome dramas. A bungled attempt to change the operating model of the group’s doorstep lending division, upheaval in the boardroom, investigations by the Financial Conduct Authority (FCA), a rescue rights issue, fighting off a hostile takeover bid by small-cap upstart Non-Standard Finance — you name it, Provident’s shareholders have probably seen it!

Confidence in recovery

Today’s half-year results will have come as a welcome relief for investors, with adjusted operating profit stable at £74.9m. Exceptional costs were much reduced, despite expenses of £23.6m to stave off Non-Standard Finance’s hostile bid.

Provident delivered strong new business volumes while maintaining stable delinquency rates, and chief executive Malcolm Le May described the results as “in line with our internal plans.” In further good news, he added: “We are pleased to announce reinstatement of an interim dividend of 9p per share, which reflects our confidence in the ongoing recovery of the group.”

With the company also announcing the FCA investigation into its Moneybarn business “is close to being concluded with the expected financial impact within the previously announced financial provisions,” the shares responded positively when the market opened this morning.

Currently trading at 435p — up 4.7% on the day — the stock has a forward price-to-earnings (P/E) ratio of 8.8, and a prospective dividend yield of 6.2% on a forecast full-year payout of 27p. The firm’s turnaround now looks close to gaining serious momentum, and the current valuation is very attractive, in my opinion. I rate the stock a ‘buy’.

Strong turnaround potential

I made a big mistake in first tipping ConvaTec far too soon after its stock market debut. However, I’ve continued to see value in the stock at lower prices, due to it owning some best-in-class medical devices, notably in ostomy care and wound care.

The last time I wrote about the company in March, the share price was 134p, the forward P/E was 12.5, and the prospective dividend yield was 3.25%. Since then, the company has announced the appointment of its new permanent chief executive and issued a first-quarter trading update.

Karim Bitar, poached from animal genetics specialist Genus, will take up the chief exec role on 30 September. It looks a good appointment as he’s highly regarded for leading transformational change at similar businesses.

Meanwhile, the company’s Q1 results in May were sufficiently encouraging to bolster my view that there’s strong turnaround potential here. The shares are up 15% to 154p since March — forward P/E now 14.8 and prospective dividend yield 2.9% — but I continue to rate the stock a ‘buy’.

The post 2 FTSE 250 turnaround stocks I’d buy right now appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today, I’m looking at three stocks that have all been big holdings in the past for troubled fund manager Neil Woodford. Mr Woodford has sold some of his shares to raise cash. But I believe these firms look attractive at current levels.

A retail essential?

Payment processing firm PayPoint (LSE: PAY) is trying to make the leap from handling cash bill payments to providing a comprehensive range of services for convenience retailers.

The company says that 13,000 of its 28,000 sites are now using the firm’s flagship PayPoint One electronic point of sale system, which provides a wide range of business services.

However, investors received a sharp reminder about the importance of this strategy in June, when PayPoint said its contract to handle British Gas bill payments and prepayment services will not be renewed.

This is expected to result in a £3.5m loss of revenue next year, but management says that underlying pre-tax profit is still expected to rise. I think the bigger question is whether the firm will have to cut its fees to avoid further contract losses.

Despite this concern, I continue to rate this profitable and cash-generative business as a buy. Its national network means that 99% of the UK population is within a mile of a PayPoint terminal.

Trading on 14 times forecast earnings and with an 8% dividend yield, I remain happy to hold and may buy more. Mr Woodford remains a major shareholder too, with just under 11% of PayPoint stock.

This 7% yielder could start climbing

Another of Neil Woodford’s long-term holdings is subprime lender Provident Financial (LSE: PFG).

Shares in this doorstep and online lender crashed in 2017, when previous management attempted a botched restructuring. The firm lost customers and missed many payment collections in the chaos that followed. A number of regulatory issues have also caused problems.

However, the company says that all of these issues have largely been resolved and that trading is improving. All four of the group’s main divisions reported lending growth during the first quarter.

Mr Woodford has cut his stake from 23.44% to 17.98%. But I suspect that he is a reluctant seller. My view is that the firm’s turnaround is likely to come good over the next year.

With the shares trading on just 8 times 2019 forecast earnings and offering a yield of 7%, I can see plenty of upside if Provident delivers on forecasts for 23% earnings growth in 2020.

Unfairly dismissed

My final pick is defence-focused engineering contractor Babcock International (LSE: BAB). The shares have fallen by more than 40% over the last year as the firm has weathered suggestions of contract problems and financial difficulties.

So far, none of these have proved to be true. Babcock’s 2018/19 results showed stable performance and an unchanged £31bn order book. Net debt fell and the group’s cash generation improved.

This type of business is always at risk of a major contract going bad. But Babcock’s specialist engineering skills mean that it enjoys much higher profit margins than most outsourcers.

The shares currently trade on just 6 times forecast earnings and offer a well-covered 6.8% dividend yield. Mr Woodford has reduced his funds’ stake below the 5% disclosure limit and may have sold completely. Personally, I think the shares are too cheap. I rate BAB as a buy.

The post 3 FTSE 250 dividend stocks with yields over 5% I’d buy in July appeared first on The Twelfth Magpie.

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Roland Head owns shares of Centrica and PayPoint. The Motley Fool UK owns shares of PayPoint. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I don’t want to say too much about Mr Woodford’s problems. Instead, I want to focus on two high-profile companies that are both linked to Woodford Investment Management. Are these stocks you should be buying amid the fallout from the fund’s suspension?

Back on track?

Shares in subprime lender Provident Financial (LSE: PFG) rose by more than 10% last week after the firm managed to fight off a hostile takeover from its smaller, loss-making rival Non-Standard Finance.

You might wonder why such a deal was ever considered. Essentially, it appears to have been orchestrated by Neil Woodford, whose funds own more than 23% of Provident and 25% of NSF.

Mr Woodford and two other major shareholders control more than 50% of Provident shares, enabling them to force through a deal. But they encountered strong opposition from a number of other big Provident investors.

Although in voting terms a deal was still possible, NSF says that the expected number of minority shareholders would have prevented the combined firm from satisfying regulatory capital requirements.

I see this as a big win for PFG shareholders. As I’ve explained before, in my view this deal was only ever likely to benefit NSF shareholders.

Moving on

So should you buy Provident Financial today? The stock isn’t without risk. Its turnaround is proving to be long and complex. But management is making progress, in my view.

The firm’s Vanquis Bank operation signed up 13% more customers during the first quarter of this year than last year. And Moneybarn vehicle loan volumes were 40% higher than during the same period of 2018.

Analysts expect adjusted earnings to rise by 10% to 53p in 2019, putting the stock on a forecast price/earnings ratio of 10. A 33p dividend is expected, giving a yield of 6.4%. In my view this could be a good entry point for long-term investors.

Patience could pay off

One of Mr Woodford’s biggest cheerleaders for many years has been investment platform Hargreaves Lansdown (LSE: HL). This firm is by far the largest of its kind in the UK, with £97.8bn of assets under administration and nearly 1.2m active clients.

From an investment perspective, it’s hard not to respect the incredible track record of this firm. Hargreaves boasts an operating profit margin of more than 60% and has delivered share price gains of about 850% since its 2007 flotation.

But despite lagging the market for the last three years, Mr Woodford’s Equity Income fund continued to feature in HL’s Wealth 50 list of “our favourite funds“. The Equity Income fund was only removed from the Wealth 50 after trading in the fund was suspended.

Investors seem to have taken a dim view of the firm’s loyalty to Mr Woodford and the Hargreaves share price fell by about 15% last week.

Is this a buying opportunity? Perhaps. But I wouldn’t rush in.

Earnings growth seems to be slowing at the firm, and I suspect last week’s events could be a short-term headwind. Although I’m sure these problems will blow over, I’d want an entry price closer to 1,700p if I was to buy today. For now, I’d rate the shares as a hold.

The post Why I’d buy this Neil Woodford FTSE 250 dividend stock today appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

By contrast, a number of dividend stocks offer yields of 6% or more per year — equivalent to £6,000+ on an investment of £100,000. Today, I want to look at three high-yield dividend stocks that are all held by fund manager Neil Woodford.

A sustainable 8% yield?

Shares in giftware retailer Card Factory (LSE: CARD) have fallen by 23% over the last year. Despite this, the firm seems to be a good, profitable business that’s likely to be a long-term survivor.

Figures released today showed sales rose by 3.3% to £436m last year. The company reckons it gained market share, despite falling high street footfall. Although operating profit fell 6% to £70.8m last year, this still represents a profit margin of 16%. That’s higher than most other retailers.

The group’s high margins are helped by its policy of designing and producing cards in house. Cash generation is strong and the total dividend (including special dividends) for 2018/19 will be 14.3p, representing 81% of adjusted earnings.

Card Factory shares now trade on 10 times earnings and boast an 8% yield. I think that’s probably too cheap for such a good business. Buy.

A complicated picture

Card Factory’s business is refreshingly simple. The picture is more complicated for high-yielding sub-prime lenders Provident Financial (LSE: PFG) and Non-Standard Finance (LSE: NSF).

The two firms are currently in the middle of a hostile takeover battle. This appears to have been orchestrated in part by Woodford, whose funds own about 25% of both companies.

Non-Standard is much smaller and was founded in 2014 by former Provident boss, John Van Kuffeler. He wants to buy his former employer, Provident Financial, which is currently in the middle of a difficult turnaround.

Van Kuffeler’s credibility has taken a hit this week after it emerged his firm’s past dividends have breached accounting rules. If the NSF finance team can’t even manage dividends successfully, then I think it’s worth asking whether they have the skills needed to merge with a much larger and more complex business.

Provident chairman Patrick Snowball certainly thinks that Non-Standard should take a step back. In a new letter to shareholders, he pointed out that the NSF team might not have the experience required to run Vanquis Bank, a regulated bank that’s a core part of the Provident business.

Snowball also took a swipe at Woodford and the other shareholders who’ve backed the deal so far, suggesting: “We see no benefit to those invested in Provident who do not have a similar holding in NSF.”

A speculative buy

Provident’s turnaround is challenging and may not be a complete success. But I don’t see any reason why NSF — which has lost money each year since its 2015 flotation — is likely to run the business any better.

Van Kuffeler’s plans to focus more heavily on doorstep lending also seem backwards to me. I think Provident’s broader portfolio of products and services makes more sense, given the increasingly tough regulation of high-cost lending.

NSF and Provident both have forecast dividend yields of more than 6%. In my view, Provident is the better buy. I’d avoid NSF, for now.

The post Why I’d ditch the Cash ISA and buy this Woodford 8% dividend stock appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of Card Factory. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

According to CEO Malcolm Le May and co, the £1.3bn offer undervalues the company and its prospects as well as presenting “significant operational and execution risks given NSF’s track record of value destruction“. Ouch. 

Instead, shareholders are being asked to put their faith in Provident’s management team and their strategy to return the business to growth.

Based on last week’s numbers, they do appear to be making at least some progress. The mid-cap reported a statutory pre-tax profit of £90.7m for 2018 compared to a £147.9m loss the year before.

Shares understandably reacted well to the news, although they’re still worth 75% less than the 2,300p-a-pop valuation hit back in April 2017. 

Quite what happens next is anyone’s guess, particularly as the Competition and Markets Authority (CMA) has confirmed that it will investigate Non-Standard Finance’s bid and Provident has refused to comment on whether it is in talks with other companies on a possible merger.

Personally, I can do without the hassle of wondering how this increasingly hostile state of affairs will resolve itself. Investing is hard at the best of times and attempting to profit from such uncertainty (as opposed to the more general ‘be greedy when others are fearful’ maxim) is fraught with risk. 

Moreover, the dividends aren’t really worth the bother. A 10p total cash return for the last financial year gives a trailing yield of just 1.7% — far less than you can get elsewhere in the market. 

All things considered, I certainly won’t be joining the queue for Provident’s stock.

Hassle-free

Right now, I still favour a different set of alternative ‘financial’ stocks, namely pawnbrokers Ramsdens Holdings (LSE: RCX) and H&T Group (LSE: HAT).

Last week, the latter released another encouraging set of full-year numbers, which included a 13.4% rise in pre-tax profit to £13.5m and, interestingly, a 37.6% rise in its net loan book from £14.9m to £20.5m.

For its part, Ramsdens recently revealed that it had bought 18 stores trading as The Money Shop for a total consideration of £1.5m. Management expects these will make “a small contribution” to pre-tax profit in FY 2020 and “approximately £0.6m” the following year. More deals like this are expected. 

To be clear, these are not glamour stocks whose share prices will rocket. They are, however, well run, diversified businesses (both also offer foreign exchange currency services and are involved in gold purchasing and jewellery retail) and should do well if the economy takes a turn for the worse in the next few years.

Another positive is that both still trade on the same reasonable valuation of around 11 times forecast earnings. Dividend yields are pretty much identical at 4.1% and are covered over twice by expected profits at each company. 

That said, I’m perfectly happy to stick with only owning stock in Ramsdens for now. Returns on capital and operating margins are higher at H&T’s smaller rival and it also had net cash of £12.4m at the half-year point back at the end of November. Expect an end-of-year trading update in early April.

The post Tempted by the Provident Financial share price? I think these small-cap stocks are far better buys appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Ramsdens Holdings. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Backing management 

Non-Standard and Provident are both similar businesses. They provide short term high-cost credit to customers who might have been shut off from traditional lenders. 

For a long time, Provident was the leader in this field under the stewardship of former CEO John van Kuffeler. However, shortly after this transformational CEO left, the wheels started to come off. The new management tried to restructure the business by altering the way it collects outstanding credit. The result was chaos. Collections slumped from more than 70% to around 50%, and many employees left the business, taking their customers with them. Companies like Non-Standard benefitted from this exodus.

And now Non-Standard, which is led by none other than John van Kuffeler, is trying to capitalise on its rival’s problems. 

Unsolicited offer 

Non-Standard has made an unsolicited £1.3bn offer for the group, which is supported by shareholders on both sides. 

Neil Woodford and his former employer Invesco own the majority of both companies and they are pushing for the merger to go ahead. However, Provident is trying to de-rail van Kuffeler’s offer, and that’s why I’d sell Provident and invest £2k in Non-Standard today. 

Provident is several times larger than Non-Standard and, if the deal completes, it will leave the former’s shareholders owning the majority of the company. This isn’t the perfect outcome, but I think combining the two groups is the right decision. Van Kuffeler’s record shows that he knows how to run a business like Provident, and run it well, so I think he’s the best candidate for the job. 

On the other hand, Provident’s current management doesn’t seem to be cut out for the job. They’ve attacked Non-Standard’s offer, stating that it has “major strategic flaws, contains a number of misguided assumptions about the Provident business and includes future plans which we consider to be fraught with execution risk.”

Provident is also attacking Non-Standard’s share price performance. In a press release published today, Provident states “NSF’s share price has fallen on average 20% since its acquisitions and its share price has fallen 30% since it announced the issuance of new shares to acquire Everyday Loans.“

This may be true, but considering Provident’s own share price is down more than 81% over the past three years, the attack seems a bit petty. 

The better buy 

All of the above leads me to conclude that Non-Standard is the better buy for investors today. 

The company might have underperformed over the past few months, but its experienced management team is worth backing, in my opinion. Van Kuffeler has an impressive track record of creating value for investors, and the combined Non-Standard/Provident should give him a stable platform to build on. 

Even if the deal doesn’t go ahead, I think the outlook for Non-Standard is bright as the business continues to build on is successes (and Provident’s failures). Without the merger, analysts believe the firm’s revenue will double over the next two years. Over the same period, analysts are expecting Provident’s revenues to flatline. 

The post One Neil Woodford stock I’d buy with £2k and one I’d sell today appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.