IPF hedges as currencies drop in Eastern Europe

The Leeds-based group said last month that sterling had appreciated materially against local currencies during the course of 2011, warning that the downturn in eastern European currencies could hit its 2012 profits.

The group lends small amounts of cash to households in Poland, the Czech Republic, Slovakia, Hungary, Mexico and Romania.

Yesterday IPF announced hedging rates for 70 per cent of its 2012 profits, but said the exchange rate is likely to be 17 per cent worse than last year.

This is three percentage points less than indicated at the time of the group’s trading update in December.

Analyst Andrew Mitchell at Charles Stanley said: “The group’s foreign exchange hedge rates for 2012 show a modestly worse year on year profit impact than foreshadowed in mid-December.

“While a small negative, in the context of downgrades already factored in and macro uncertainty this is not a significant hit.”

Last night the group’s shares closed down 8.9p at 172p.

IPF’s shares are down 14 per cent over the past month on fears that it could be affected by the eurozone crisis.

Mr Mitchell said that the most marked foreign exchange movements since December have been in Hungary, where the currency has fallen by 8.6 per cent.

Its largest market – Poland – has been less affected with the Polish zloty down by two per cent.

“The additional potential three per cent hit is not substantial given additional uncertainties relating to macroeconomic developments and further potential foreign exchange movements affecting the unhedged portion of profits,” said Mr Mitchell.

“For the moment we leave our estimates unchanged with a 2012 estimated pre-tax profit of £100.7m compared with the company-collected consensus estimate of £103m,” he added.

Shore Capital analyst Gary Greenwood said: “Taking into account hedging and current spot rates, we are further downgrading our full year 2012 and full year 2013 earnings per share forecasts by 2.3 per cent and 1.4 per cent respectively to 26.0p.

“We retain our ‘hold’ stance, reflecting our view that the risk to group earnings per share forecasts remains to the downside, noting in particular current market concerns around the Hungarian economy, a region which accounts for eight per cent of our group forecast group profits in 2012.”

IPF has said the economies of its target markets are performing well.

In terms of exposure to the eurozone, Hungary is the market with the highest exposure to exports, particularly Germany.

Poland, the group’s strongest country, is the least exposed with small exposure to exports.

IPF believes the current state of the global economy makes the outlook for 2012 unusually uncertain.

In December it estimated that compared with the effective rates used to translate overseas profits in 2011, current foreign exchange rates could negatively hit reported profits by 14 per cent.

Despite reduced co nsumer confidence, IPF’s credit issued has continued to grow, up by four per cent in the quarter to December 2011.

IPF said that by carefully balancing growth with a prudent policy on credit, it has maintained good credit quality.

Changes to the Hungarian corporation tax resulted in a one-off increase in the group’s effective tax rate for 2010. A decision to return to the old tax regime means the group expects a one-off reduction in its effective tax rate in 2011 of between four and 24 per cent.

IPF has been hit by a number of external factors outside its control and it could be affected by the eurozone debt crisis.

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