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Is it game over for Neil Woodford flop Provident Financial after today’s 20% drop?

Ace stock-picker Neil Woodford seems to have lost his magic touch, making a string of bad calls over the last couple of years. Bad credit lender Provident Financial (LSE: PFG) is perhaps the most notorious of all.

Improvident

Provident has lost 80% of its value over the past three years and is down 20% today after issuing a profit warning. It said full-year figures would be at the lower end of market expectations, as customers struggle to service their debt obligations.

Group adjusted profits before tax for 2018 are set to be “towards the lower end of the range of market expectations of £151m to £166m,” with impairments “modestly higher than expected.” This reflects a continued increase in the use of payment arrangements at its Vanquis Bank credit cards arm. Today’s drop wiped out the share price progress seen in the last three months.

Subprime stock

CEO Malcolm Le May did his best to reassure by reporting progress on operational objectives, as well as tightening underwriting standards “in anticipation of the current uncertain UK economic environment we are facing.”

He said Provident has “strong funding and capital positions” and management actions over the last 18 months have established a solid foundation for continuing to deliver on its strategic aim of being the leading provider of credit products to 10m-12m consumers “who are not well served by mainstream lenders.”

Badly impaired

These are tough times and Provident is at the sharp end of consumer debt problems, as more of its customers go into payment arrangements, while Q4 new account bookings at Vanquis fell 18% year-on-year to 76,000.

With Vanquis and the group’s car finance arm Moneybarn both investigated by the FCA, you have to wonder what persuaded Woodford to go so hard into this stock. Some might see an opportunity here, with earnings forecast to grow 22% in 2019, and 20% in 2020. Provident trades at a forecast valuation of 10.6 times earnings and yields a forecast 6.2%, with cover of 1.5. 

It could be a good post-Brexit recovery play. I just fear further bad news in the pipeline.

Kier we go

Woodford-backed construction firm Kier Group (LSE: KIE) slumped 33% in December after launching a £264m rights issue, another blow to his stock selecting reputation. The group wants the money to pay down its debt pile and strengthen its balance sheet as lenders become more cautious towards the construction sector following Carillion’s collapse, as Edward Sheldon explains here.

Things have picked up since. In fact, the group trades 25% higher than it did just one month ago, even as markets generally continue to struggle.

Uppers and Downer

Kier has been supported by some positive broker updates, with Peel Hunt upgrading it to a buy with a target price of 900p, which offers plenty of upside from today’s 505p. The FTSE 250-listed firm has also raised £25m from the disposal of its KHSA operation to Australian firm Downer Group.

The real boost came when it retained its place as a contractor on procurement body North West Construction Hub’s £1.5bn high-value framework for the next four years. A forecast valuation of 5.7 times earnings will tempt some, while the forecast yield of 3.4% is covered five times. This is still a risky sector, though, as the Brexit nightmare drags on. One for risk takers. 

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harveyj 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.