International Personal Finance Plc

International Personal Finance Plc (LON: IPF) is an FTSE All-Share listed, which is engaged in home credit and digital lending business. It provides unsecured consumer credit to nearly two million customers across 11 markets.

The Company will release Q3 FY2020 trading update on 29 October 2020.

Investment Highlights - International Personal Finance Plc – Sell at GBX 71

• The Company witnessed a significant decline in the H1 FY2020, due to covid-19 crisis which elevated impairment charge and resulted in negative profitability.
• In the last six months and one year, the Company delivered a negative return of 59.50% and 4046%, respectively, and delivered significantly lower returns compared to the benchmark Index (FTSE-all Share Index).
• The Company has a Debt/Equity ratio of 1.59% in FY2019 and is continuously increasing on year-on-year basis from 2016, reflecting an increase in the debt in the capital structure, and is ahead of industry median of 1.17%.

Key Risks

• The prolonged states of lockdown can massively impact credit issued and customer collections.
• Due to Covid-19, agents might not be able to regularly visit customers which can lead to business loss.

Financial Performance – H1 Financial Year 2020 (30 June 2020)

(Source: Interim Report, Company Website) 

• In the first half of the financial year 2020, the financial performance was impacted by the covid-19 crisis, which resulted in a decline in customer number, credit issues and revenue for the period.
• The profitability margins have declined significantly, and the Company shifted focus on liquidity and quality to deliver cost savings of £24.2 million.
• The Company took a decisive and swift response to tackle the impact of covid-19 in March and will complete organisational restructuring in Q3 FY2020.
• The Company has a strong liquidity and capital position and managed to reduce net debt by £125 million.

One Year Share Price Chart

Daily Chart as of 8 September 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Technical Performance

From the technical standpoint, shares were trading below the support level of 10-day simple moving average prices, which reflects a downtrend in the stock and can move down further.

Valuation Methodology (Illustrative)

Conclusion

The Company showed a significant decline in financial performance in the first half of the financial year 2020, due to the impact of covid-19. Both the top-line and the bottom-line performance have declined, with negative profitability margins. The Company witnessed a decline in customer number and credit issues, with an increase in an impairment charge.

To tackle the impact of covid-19, the Company took a decisive and swift response and shifted its focus to liquidity and quality. IPF will be completing organisational restructuring in the third quarter, which could boost the performance or further deteriorate the profitability margins. The stock made a 52-week low and high of GBX 32.55 and GBX 179.80, respectively.

Based on the risks associated and uncertain business environment, we have given a “Sell” recommendation at the current price of GBX 71.00 (as on 8 September 2020, before the market close at 8:00 AM GMT+1) based on 0.48x Price/NTM Book value (approx.) on FY20E book value per share (approx.). 

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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