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International Personal Finance slumps by a fifth after Slovak ruling

Discussion in 'Market News' started by Lily, Dec 11, 2015.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Country’s proposals on consumer lending could have “material” impact on IPF

    International Personal Finance has lost around a fifth of its value after the emerging markets lender revealed an unexpected change in consumer legislation in Slovakia, a move which could hit its business in the country.

    Almost two years after Poland gave the company an unwanted Christmas gift in the form of a £2.4m fine and around three months since Poland placed a cap on all non-interest costs of credit, Slovakia also plans changes to loan legislation.

    Based on our current understanding these changes would mean that all fees that IPF raises in connection with the issuance of a loan, including the fee for home service, would need to be levied at rates consistent with the remuneration cap.

    [If approved] it would have a material adverse financial impactd on [the] Slovak business and the company is very actively reviewing the implications of these unexpected amendments.

    [These amendments] came as a surprise to us and the company. The statement went on to say that if the legislation was enacted in current form it would, “Have a material adverse financial impact on its Slovak business.” The legislation may well be challenged before becoming effective. We leave forecasts unchanged, for now.

    Our analysis suggests a hit to 2016 earnings per share of 11% to 19%. We increase our discount to the sector to 45% (old: 40%), giving a target price of 262p, 2016 PE of 9.5 times (worst case scenario).

    Slovakia announced a very different and materially worse interest rate cap than Poland and it looks to us that this market will now be uneconomic. It appears to us that it will (assuming the regulation is passed) be impossible for a significant proportion of the population to be able to get any form credit at all. This is however, not material in a P&L context but given the market concerns about regulation, we expect the share price impact to be more significant than the 5% decline seen yesterday.

    The bears will argue that IPF is being regulated out of existence, but we suspect this is not the case and eventually Slovakia and Poland will repeal their regulation as illegal lending (with all its associated consequences) expands to fill the space left by legitimate providers of credit. Nevertheless, given where the valuation is, we do not see where valuation support is for the group given the annual cash return to shareholders is now in excess of 11%, with a PE of 8.7 times, and a 20% earnings per share compound annual growth rate since IPF came to market.

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