Shares in Provident Financial, the subprime lender, continued to fall sharply on Wednesday as fears the company will announce a rights issue followed Tuesday's disappointing trading update.
In October the company reported that it expected losses from its doorstep lending business in the region of £80m-£120m. In Tuesday's trading update, the company confirmed an expected full-year loss of "approximately £115m". The shares lost 12.6% on Tuesday
Rights issue fears
Concerns that the company will now have to raise equity amid cash squeeze concerns saw the shares fall as much as 20% in early trade on Wednesday.
The company faces around £35m in repayments to lenders in the coming weeks and reported cash reserves of just £34m, plus £66m in bank covenants at the end of 2017.
Gary Greenwood at Shore Capital said on Tuesday: "Although we think the group will avoid breaching debt covenants in a redress scenario, we now think an equity raise to replenish resources is increasingly likely, with a resumption of dividend payments also delayed."
Profit warnings and FCA probe
Provident's problems don't stop here. Following two profit warnings last year, the company revealed in December that it was under regulatory scrutiny from the Financial Conduct Authority for the sale of repayment option plans (ROP) - loan products that have likened to PPIs.
Liberum on Wednesday cut its target price on the stock to 479p from 483p as its analysts said the shares were mispriced and "risks still too great to consider owning the stock".
"The trading update offered no resolution on the FCA's investigation into ROP, the search for a new CEO and the balance sheet, which we are still convinced needs strengthening," Liberum added.
Fellow brokerage Peel Hunt expressed a similar view: "With little clarity about the eventual resolution with the regulators, we remain of the view that the shares will remain volatile."
Provident Financial's shares have fallen nearly 80% since its first profit warning in June, and after an hour-and-a-half of trade on the London Stock Exchange they were down 12.7% at 702p.