LONDON (Reuters) - Consumer lender Provident Financial (PFG.L) gave details of a planned split of its international and UK arms on Thursday, telling investors it saw subprime lending growth at home as well as expanding markets abroad.
Shareholders, due to vote on the planned demerger at a July 13 meeting, will receive one share in the new overseas arm, International Personal Finance (IPF), for every Provident share they hold. The demerger will be effective from July 16.
A lender specialising in doorstep loans that its agents deliver and then collect repayments on each week, Provident first said last year that it would spin off its overseas home-credit business to better capture growth opportunities.
Provident’s international arm has 1.8 million customers across six countries, mostly in eastern and central Europe. It said on Thursday it saw further expansion opportunities, with a target list of eight large new markets including India and Russia, where it could buy a small bank this year.
Provident said both its arms had seen a positive start to 2007, with the tightening of lending criteria by mainstream lenders at home helping its subprime business.
At Thursday’s share price of 778-1/2 pence in mid-morning trade, Provident Financial has a market value of around 2 billion pounds in its current group form. It gave no details of the expected market value of each side after the split.
The group said the UK and overseas arms intended to pay an aggregate 2007 dividend of 36.5 pence, flat on 2006.
IPF said its proforma 2006 pre-tax profit was 39.9 million pounds — below some analysts’ expectations — but said it saw strong growth ahead as it ramps up existing businesses and enters three to four new countries in the next five years.
It aims to increase pre-tax profit from established central European markets by 50 percent to 95 million pounds and to boost Mexican profits to 90 million.
“The demand for borrowing in the developing world is huge,” IPF’s chairman designate, Christopher Rodrigues, said in a telephone interview. He said IPF plans to set up a pilot in Russia, where it sees five million potential customers, and could by the end of 2007 buy a bank there for 3-5 million pounds.
“It’s not essential, but we prefer to be under the wing of a central bank. We are not looking for anything that is more than a modest-sized shell,” he said.
Britain, a mature market, has seen slower growth, but Provident said it was confident there was an increased market opportunity given the growing subprime market and tightening of lending by mainstream banks and other lenders.
Provident Chairman John van Kuffeler said he saw growth helped by credit-card unit Vanquis, set to trade around break even in 2007, and from longer, larger loans, as well as remote loans — those granted and collected via the Internet.
“(Traditional lenders) have had their fingers burnt and have withdrawn — what we’re seeing for the first time in a number of years is customer growth in the UK,” he said.
“We’re seeing growth in both customer numbers and credit issues as a result of market conditions and we believe those are likely to persist for the next couple of years.”
Provident shares were down 0.2 percent at 10:04 a.m.
“We cannot see anything in today’s announcement that is likely to disappoint investors but believe the group’s valuation more than reflects the potential upside from the restructuring,” analyst Katrina Preston at Bridgewell said in a research note.