It is a month since Malcolm Le May, chief executive of Provident Financial, saddled up and set off in search of a white knight to save one of the UK’s largest lenders to people with impaired credit. His task began after a rival, Non-Standard Finance, proposed a hostile takeover backed by key investors in both companies.
No white knight has yet emerged and, worse still, one potential buyer of Provident, Amigo Loans, formally ruled itself out last week.
Fading hopes that a counter bidder for Provident would emerge are reflected in the fact that most of the bid premium that had buoyed its shares has dissipated in recent days.
That leaves NSF’s bid on the table, offering 8.88 shares for each Provident share, valuing the deal yesterday at £1.26 billion. The offer at no premium to Provident’s shares hardly seems generous, but investors may have to decide whether to take it or hope the business can achieve a big uplift in value from completing its restructuring programme.
NSF is close to victory, given that Neil Woodford’s Woodford Investment Management, Invesco and Marathon support its offer. The trio own almost 50 per cent of Provident and 65 per cent of NSF.
Other shareholders should wait. There is no point accepting NSF weeks before its May 8 deadline, as another bidder may emerge.
Analysts at Numis point to New Day or Capital One as potential acquirers of Provident at a level above that offered by NSF. However, those two are likely to want parts of the Bradford-based business rather than the whole thing, so their price would be based on their perceived break-up value of Provident.
Yesterday it emerged that Coltrane Asset Management, an American hedge fund, has bought a stake of almost 4 per cent in Provident. This suggests that Coltrane thinks another offer could emerge or that it could push NSF to improve its offer.
If no other offer materialises, should Provident’s shareholders accept NSF’s deal? There would be synergies in combining the businesses, cutting overheads and lowering funding costs. But mainly the questions are about strategic direction. Both sides have slung mud over each other’s management teams. Provident this week named the new leadership of its Vanquis bank subsidiary. That triggered accusations from NSF that the team was associated with failures at Cattles and Wonga.
John van Kuffeler, 70, NSF’s chief executive, ran Provident for 22 years before leaving in 2013. He did an excellent job for shareholders, making investors about 40 times their money, but his track record at NSF has been less impressive, with shares having fallen 40 per cent since it floated in 2015.
Mr Le May at Provident has done a lot of work to pull the business out of a quagmire of regulatory investigations and bring stability to the home credit outfit. But that has yet to feed through to Provident’s results, opening Mr Le May, 60, up to the charge that he has been too slow, and is in any case implicated in the business’s past difficulties, as he was the senior independent director for four years as its problems ballooned.
Both businesses face two problems that should make investors question whether owning shares of either is sensible. It is likely that in the event of no-deal Brexit, sterling will fall and inflation will rise, hurting the people on low incomes whom they target. The other issue is that the regulatory net is tightening on high-cost credit businesses. It is questionable whether the Financial Conduct Authority will allow doorstep lending in its present form in the future.
ADVICE Hold
WHY Wait and see if a higher offer emerges. If not, accept the NSF offer, as Provident’s shares are set to fall further without a deal on the table
Aggreko
With Aggreko’s customers ranging from the organisers of the Glastonbury festival to the football World Cup and the Olympics, the supply of temporary power can be lent a glossy celebrity sheen (Greig Cameron writes).
While those types of events provide a steady stream of revenue, the company’s power generators are designed for much harsher conditions, allowing it to operate in mines and oil installations as well as in the aftermath of natural disasters.
Aggreko, which floated in 1997, employs more than 6,000 people and is the world’s largest supplier of temporary power as well as a provider of cooling equipment.
Chris Weston, chief executive, was upbeat at the start of this month when speaking about the annual results for 2018, even though pre-tax profit fell 4 per cent to £182 million. He pointed out that after stripping out currency fluctuations, profit would have been 10 per cent higher while underlying revenue was up by 8 per cent to more than £1.7 billion.
Shareholders may have been less impressed with the dividend still at 27.12p. It has been at that level since 2014, causing disgruntlement at the annual meeting. Aggreko does have cover of 1.8 times for the dividend so the prospect of it being cut appears slim. However, Aggreko remains somewhat unloved by the market. When Mr Weston joined in 2014, the shares were worth about £15 but by the beginning of 2016 — after a profit warning due in part to the downturn in the oil price — the stock was trading at about 820p. It went as low as 640p last year but has been above 700p for much of this year. Last night it closed down by 4.5 per cent, or 36½p, to 766p.
Mr Weston believes that the company is on a “firm footing” and plans to take out £50 million of costs this year. He pointed out that Chevron and Exxon, two large customers, were planning to triple production in the Permian Basin oilfield in the US in the next five years. The oil and gas sector in North America is among the areas where Mr Weston expects strong performance. The deployment of hybrid generators, featuring solar panels, is also tipped to gather pace as customers look to cut emissions.
ADVICE Hold
WHY Some key markets look well positioned for upturn and surely dividend must rise soon