What a day…
On Monday PFG‘s shares closed at 588p, dropping about 10% that day, because a rumor spread during the weekend that the company was considering a £500m rights issue. Another contributing factor was the scheduled release of the company’s 2017 results yesterday, with investors fearing a fine of £300m imposed by the FCA relating to the investigation into Vanquis Bank’s Repayment Option Plan product, and unsure about the investigation into Moneybarn’s affordability, forbearance and termination options.
Based on the company’s history, past performance and shareholder orientation, I was confident that PFG would be able to handle its current challenges, and I thought that the share price was incredibly cheap, so I was willing to accept the risk that the news would be worse than expected (check out my valuation of PFG). I had already bought 75 shares for about 795p each, and now that they were even cheaper, I wanted to buy more. Therefore, I doubled my investment and bought 100 shares at £5.8955 (my first transaction through AJ Bell), with a dealing charge of £9.95 and stamp duty of £2.95 (2.19% over my purchase price), bringing the transaction cost to a total of £602.45.
On Monday night I owned 175 shares of PFG for a total investment of £1,214.55, which brought my average share price down to 694p.
On Tuesday morning PFG published its 2017 results and made a few announcements, with the main highlights being:
- resolution of the FCA investigation with a total estimated settlement cost of £172.1m (much lower than the £300m many analysts were estimating);
- estimated liability of £20m for the FCA investigation into Moneybarn;
- fully underwritten rights issue to raise £300m net proceeds (much lower than the £500m that was rumored during the weekend);
- adjusted profit before tax of £109.1m, down 67.3% from £334.1m yoy;
- statutory loss of £123m (much better than what analysts were expecting);
- intention to restore dividends with a nominal dividend for 2018 before adopting a progressive dividend starting from 2019.
With the news not being anywhere near as bad as expected the share price exploded up 70.41% and closed at 1,002p (from 588p the previous day) giving me a profit of £538.95 on my position (44.37% over my investment of £1,214.55).
(A more complete analysis of PFG’s 2017 annual report will follow in a few weeks.)