IPF shares jump on profit upgrades

Analysts are raising full year forecasts by between £5m and £10m for the full financial year.

The Leeds-based firm, which provides small personal loans to more than 2.8 million borrowers in Europe and Mexico, said pre​-​tax profit from continuing operations rose to ​£​43​m in the six months ​to June​ 30​,​ up ​from ​£​33​m ​​the year before. The firm was boosted by a £7m windfall from the collapse in the pound.

IPF's chief executive Gerard Ryan said the group had enjoyed a good financial and operational performance in the first half with 10 per cent growth in credit issued.

He said the European home credit businesses performed in line with expectations and the Mexican business delivered positive business momentum.

"IPF Digital reported excellent top-line growth together with improved profitability in its established markets," he said.

"We feel really positive about IPF Digital. We are seeking to demonstrate what we can deliver in newer markets, which are bigger than our well established markets. The outlook for that business is very, very good."

Analyst Gary Greenwood at Shore Capital said: "IPF’s interim results came in well ahead of our expectations drive by a combination of better-than-expected collect out in Slovakia and Lithuania (both in run-off), strong performance from IPF Digital’s established markets and favourable foreign exchange movements.

"This was partly offset by increased investment in IPF Digital’s new markets. Overall we expect to upgrade our full year adjusted pre-tax profit forecast to between £95m and £100m (versus £88.3m presently), albeit noting that around half of this is due to the better performance of run-off businesses which will not repeat."

IPF's shares closed up 14p at 189p.

The company said it is continuing to talk to the Polish Ministry of Justice about proposed changes to the total cost of credit regulations.

Poland, which together with Lithuania makes up IPF's biggest market, has proposed to lower the limit on non-interest costs to 75 per cent of the amount of the loan from 100 per cent.

"The Polish talks are progressing. The politicians are engaged in constructive discussions," said Mr Ryan.

Mr Greenwood said: "While underlying business performance was better than expected, the investment case continues to be overshadowed by competitive and regulatory pressures in the group’s Eastern European markets, with the overhang from the Polish price cap proposal being the key issue.

"While we would expect the shares to perform well this morning, valuation multiples are likely to remain depressed until the Polish price capping issue is resolved."

The company has shut shop in Slovakia, Bulgaria and stopped lending to high-risk customers in Poland.

IPF's home credit business has been hit by intense competition as well as regulatory upheavals.

"While we expect the regulatory landscape in Europe to remain challenging, we continue to believe our Mexico home credit business and IPF Digital offer significant growth opportunities," said Mr Ryan.

The home credit business accounted for more than 90 per cent of the company's total revenue in 2016, but digital lenders were luring away IPF's higher creditworthy customers, forcing the company to spend more to retain them.

IPF maintained its interim dividend at 4.6p per share.

"We are maintaining the dividend as we are confident in terms of trading and in the strength of the balance sheet," said Mr Ryan.

Total credit issued in the period rose 9.9 per cent to £616m, driven by strong demand in Mexico for home credit and its digital business.

Revenue rose 2.6 per cent to £400.8m.