Amid a deluge of company results, emerging markets lender International Personal Finance stands out by losing nearly a fifth of its value.
The company said first half profits fell from £43.3m a year ago to £30.7m, hit by tougher legislation in Poland and a disappointing performance in Mexico which has prompted a restructuring in the country. It saw a strong performance in southern Europe and continued to invest in its digital business.
At the end of last year the company saw its shares slump after an unexpected change in consumer legislation in Slovakia which led to its winding down its business in the country.
Chief executive officer Gerard Ryan said:
Our business is undergoing significant change as we address competition and regulation but our strategy reflects this changing dynamic and we are well placed to take advantage of growing demand within our target segmnent of consumers for digital loans.
But its shares - which have been moving higher since June - have slumped 19.4% to 271.6p. Analyst Stuart Duncan at Peel Hunt moved from buy to hold and said:
Although profits are broadly as expected, there is a relatively mixed underlying picture for IPF. The guidance on Poland remains unchanged, but performance in Mexico has remained disappointing and profits have fallen materially. This will offset, to some extent, the likely benefit from recent sterling weakness.
The reduction in profitability in the first half largely reflects two specific issues. Firstly, profits in Poland were significantly affected, as expected, by the new legislation which was implemented in March. Profits fell by around 25%, with the guidance on the likely full-year impact unchanged at £30m (of which half is expected to be mitigated). The statement reports that there has been little change in the competitive landscape in Poland, with the customer response to the new rule still unclear.
The second point is the continued underperformance in Mexico, which was first flagged in the first quarter update. Profits fell materially, to just £2.3m, with credit issued falling by 10% and collections performance deteriorating – impairments increased by almost 4% to 35.7%. Remedial action is being taken but it remains unclear how quickly performance will be improved.
Regulation remains the key risk for IPF, with imminent changes in a number of geographies highlighting the ongoing risks. There are legislation changes in Romania, Czech Republic and Mexico which although not as significant as in Poland, put further pressure on the group’s products and operational practices.
Gary Greenwood at Shore Capital said:
Given the valuation and ongoing concerns around competition and regulation in Eastern Europe as well as the sharp deterioration in performance in Mexico, we downgrade our recommendation to hold (from buy).
