Provident Financial is high enough

Consumer borrowing topped £1 trillion for the first time last year, but Britain's debt explosion has not done much for the bottom line at the doorstep lender Provident Financial.

Consumer borrowing topped £1 trillion for the first time last year, but Britain's debt explosion has not done much for the bottom line at the doorstep lender Provident Financial.

Yesterday it unveiled a 7 per cent rise in profit before tax to £220.7m for 2004, but all of that growth was achieved overseas rather than at home. In the UK, the market for credit is now phenomenally competitive. Even though Provident competes at the more risky end of this business, for borrowers with below-average credit ratings, many mainstream lenders are expanding into this sector.

The company is also facing an Office of Fair Trading inquiry into the home credit market, with an initial report due in September. The inquiry follows a complaint from the National Consumer Council, which claims low-income borrowers are being overcharged by companies such as Provident.

Diversification in the UK is helping to a limited extent. Provident's motor insurance subsidiary unveiled improved profits of £34.6m, up by 21 per cent. However, against that profits at the company's Yes Car Credit business more than halved, from £11.2m to £4.4m.

That leaves international expansion as the company's best source of growth. A new venture in Mexico is in its earliest days, but there are reasons to be optimistic about Eastern Europe as the former Communist economies modernise. These lending markets are much less competitive. Provident's first overseas venture, in Poland, is now well established and performing strongly, as is the one in the Czech Republic. The nascent Hungary and Slovakia divisions made a profit for the first time in 2004.

These emerging economies are not without their risks, though, and with Provident's home market looking so challenging, the shares - which rose 32p to 710p yesterday - are high enough.