International Personal Finance (LON:IPF) - A risky international lender but the valuation is hard to ignore
Market cap at the time of writing: £270m, at a share price of 124p
I’ve covered IPF and written positively about it for a long time, and now I want it on my annual watchlist.
IPF is an international consumer lender serving people who for a variety of reasons do not access credit from the mainstream banking system. Many of IPF’s customers would be considered high-risk by other lenders.
The flagship product is home credit but IPF also provides credit cards and online loans.
I interviewed the management team in July, publishing my notes here on Stockopedia.
The main challenge faced by the company in recent times has been the introduction of a cap on the cost of credit in Poland, which resulted in a major restructuring, redundancies, and the transition to greater emphasis on a credit card product.
CEO Gerard Ryan told me that while the exceptional costs associated with Poland are not finished yet, he thinks there is less planned activity now in terms of new regulations across IPF’s markets. The Czech Republic is the only European country where IPF does not currently face a rate cap.
Looking further afield, IPF is keen to expand in Mexico where there is currently no rate cap. The impairment rate there is a staggering 30% but it’s seen as a growth opportunity and so IPF is looking to increase its overall impairment rate from 9.2% to a target range of 14-16%.
IPF’s shares trade on a forecast PER of only 5.5x and have a perfect StockRank of 99:
The company does use substantial debt to fund its activities but seems comfortable with its position, even launching a £15m share buyback in July of this year. Total borrowings were last seen at over £550m and the company has a junk (or “non-investment grade”) rating of BB from Fitch.
It has a clearly laid out financial framework which targets an (attractive in my view) return on required equity of 15-20%, a dividend payout ratio of at least 40%, and equity of at least 40% of its outstanding receivables.
But by June this year, strong trading had strengthened its equity to receivables ratio to 56%,…
