Regulation squeezes profits at home credit provider

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Home credit provider International Personal Finance has seen strong growth tempered by market and currency costs, with new regulation in Eastern Europe affecting its performance.

The Leeds-based finance company recorded a five per cent growth to £34m profit before tax in its 2014 Q3 results. This was compared to underlying growth of 21 per cent for the period.

The firm, which operates in Poland, the Czech Republic, Slovakia, Hungary, Mexico, Romania, Lithuania and Bulgaria, saw five per cent growth in customer numbers to 2.62m, while credit issued grew one per cent to £245.5m.

Strong performance in Poland-Lithuania saw profits rise 28 per cent to £21.4m, offseting a sharp decrease in profits in the Czech-Slovakia region. The market saw a 54 per cent drop to £4.1m, with a £3.8m fall in underlying profit and £1m foreign exchange costs.

This was driven by “continued strong competition and flat demand for credit” in the Czech Republic and regulatory changes in Slovakia, the impact of which “proved longer-lived and more extensive than initially anticipated”, International Personal Finance said.

Chief executive Gerard Ryan said: “Overall, our business is performing well and we have delivered good profit before tax growth despite weakness in Czech-Slovakia, where trading conditions proved challenging.

“I am confident that we are on track to deliver a good full- year performance in 2014 as a result of the strong performances of our other businesses.”

The company will launch its first digital loan product in Poland, under the hapi brand, in Q4.

Mr Ryan said the product “offers an exciting growth opportunity alongside our successful home credit model”.

Analysts at Shore Capital said new regulation in Slovakia has limited visits to customers’ homes, heavily impacting on the company’s model. However, analysts noted a plastic card delivery system has been introduced in an effort to overcome the issue, with “positive” initial results.

The FTSE 250-listed firm’s shares have fallen around 28 per cent from their July 2014 peak to 457p, Shore Capital said, “reflecting a combination of increasing concerns around the macroeconomic and regulatory backdrop for the company”.

A more “comfortable” price entry point could be around 430p, it added.