Good morning,
Dod101 wrote:Profits expected to be at the lower end of market expectations. Expect to pay a nominal dividend. No wonder the shares are down. Its best days seem to be behind it.
Dod
I don't agree, so much so that I have just bought £12k worth, I am not a long term holder but if I were I would have it in such a portfolio.
Here's the reason and it is a long post
The reason is that a few years the company recognised that its business model would not survive into a more heavily regulated future and took steps to ensure its long term prospects but made two massive mistakes one of which almost destroyed the company and required a massive rights issue.
For those who haven't been following PFG too much;
It used to be just a doorstep lender and had been around for 100 years or so, what this means is that they had a few thousand self employed agents who would go to people's houses and make smallish cash loans and then go back week after week to collect the repayments.
The problem with model is that there were real and perceived issues with the agents offering bigger and bigger loans trapping the client into debt forever.
To address this PFG both broadened it services, they now also offer a credit card (Vanquish), longer term loans online (Satsuma) and car specific loans (Moneybarn)
Starting with the smallest issues.
By and large Moneybarn and Satsuma have been okayish, when dealing with people who can't afford to repay their loans there is always some element of blame attached to the lender and Moneybarn has had such problems but they are not business threatening.
PFG had a good idea for the Vanquish credit card,the Repayment Option Plan, for a smallish percentage of the outstanding balance every month the cardholder would be allowed to skip a payment or two and if they were late in making a payment this would not be reported to the credit reference agencies.
This was supposed to be sold to people looking to rebuild their credit ratings, but apparently it was massively oversold, just like PPI. Unlike PPI everyone who had it could use it and everybody knew about it as it appeared every month on the statement.
This went badly wrong and large repayments to customers had to be made as many customer say that they didn't want it but believed that if they didn't take it they wouldn't get the card. As the cost was added to the card it would incur interest if the balance was not repaid in full and next month there would be interest on the interest and cost of the service would rise to cover increased balance.
It is slightly worrying that nobody at PFG saw this and thought, this is going to come back and bite us.
What did not happen was any massive fines being issued, it was agreed that repayments would be made and the sales process improved but it was accepted that everybody who had it, knew that they had it and hadn't complained.
The big mistake that almost killed the company is that to be seen to be operating with Best Practice PFG decided to replace the self employed agents with employees with managers arranging their day's activities. From a Best Practice perspective this was the right thing to do and has set the company up for the future.
What happened is that the self employed agents didn't want to become non commissioned employees, new loans dropped and payment collection weren't getting done. As PFG are not the only provider in the market some agents went to the competitors taking the clients with them, those clients that stayed may not have been visited by an employed person to collect the repayments because there weren't enough collectors.
Sure the debts were still due just not being collected.
Indeed getting collectors is still a problem and a more ethical commission policy is being developed, and this may attract some ex agents back.
There are however some differences between a self employed agent and an employed one.
The self employed agent would make payment collections at whatever time was required if he had a book that meant collecting at 6am from people finishing a shift and the rest at 4pm before the start of another shift, they he would do that and goof off in between. The employed collector went when he was told to.
The self employed agent might have made loans that the employed collector would not as they were "bad" loans as the customer didn't absolutely need them or they were too large. This is the big issue with Best Practice how do you avoid ripping off people who have limited credit options?
Because of the nature of the self employed agents job, the self employed agent would be a "people person" and the borrower would often perceive the agent as a friend doing them a favour, whereas the employed collector would be "working for a bank"
What is important to me is that tost of PFGs competitor have not moved to employed collectors and Best Practice and may have this problem to come as regulation gets tighter.
Surprising we have seen from Wonga just how difficult it is making money from the sub prime market and PFG have a massive customer base of people whose payment histories they know.
Given the nature of this customer base the big credit reference agencies are of limited benefit, they may tell you that the individual is a significant risk, but you knew that anyway as they are coming to you!
So I believe that with PFG you can identify the reason for the big issue and it was mostly a one off.
Bye
Ian
If I recall correctly you sold out last year on the potential move out of the UK, but then rebought when that plan was shelved.