International Personal Finance – attractively high yielding with a low P/E multiple

A couple of weeks ago International Personal Finance (LON:IPF) announced an encouraging Trading Update for the period to the end of July.

The cash generative group specialises in providing unsecured consumer credit to around two million customers across 11 international markets.

It employs 6,900 people and has more than 19,000 agents.

It operates the world’s largest home credit business and a leading fintech business, IPF Digital.

The company offers unsecured consumer finance products, channels and brands.

It provides small-sum, unsecured consumer loans and lines of credit to customers who are, very often, underbanked or underserved by mainstream credit operators.

The group adopts a responsible attitude when helping its customers meet their specific borrowing needs and financial circumstances.
Its business segments include home credit and digital.

Under its home credit segment, the company offers home credit cash loans; money transfer loans; home, medical and life insurances; micro-business loans, and provident-branded digital loan products.

The company operates home credit business in Poland, Hungary and the Czech Republic.

There are 1.8m customers, with a typical loan value of around £500, on repayment terms from 32 weeks to three years.

Under the digital segment, it offers instalment loans, revolving credit line facility, and monthly repayment products.

It operates its digital business in Estonia, Latvia, Lithuania, Finland, Poland, Spain, Mexico and Australia.

There are over 300,000 customers, with an average outstanding balance of some £1,100. Instalment loan monthly repayment terms are up to three years.

After the major impact of Covid-19 upon its business, it now appears that the group delivered a good performance in July having been helped by a normalisation of its agent services to its customers in the last two months.

CEO Gerald Ryan informed shareholders “I anticipate a continuation of our positive collection trends alongside progressive increases in new lending, both of which will help deliver further improvements in our overall group performance”.

The company, which is a FTSE250 constituent, has 236m shares in issue. The larger holders include Standard Life Investments (12.00%), Aberforth Partners (10.1%), Marathon Asset (9.93%), Franklin Templeton (5.39%), Schroder Investment (5.01%), FIL Investment (4.97%), Merian Global (4.88%), FIAM (4.88%), Norges Bank Investment (2.93%), and Henderson Global (3.74%).

The group, which has over £1.35bn of credit issued, has a robust balance sheet and a strong funding position, with £182m headroom on its debt facilities. It does, however, have a £400m wad of 5.75% Eurobonds waiting to be refinanced.

Broker’s estimates for the current year to end December suggest that revenue will have fallen from £889m to £820m, with pre-tax profits dropping just £2m to £112m, giving earnings of 28p per share and handsomely covering a 6p dividend.

The next year should see revenues recovering to around £875m, while analysts reckon pre-tax profits will ease back to £75m, worth 19p in earnings but amply able to pay a projected 7.5p dividend per share. A very appealing yield.

One point that is well worth mentioning is that the group creates a strong investor relationship through the frequent issue of news, information and updates. Hundreds of other quoted companies would do well to follow IPF’s lead.

The interim results to end June will be declared on Tuesday 8 September, to be followed on Thursday 29 October by the group’s third quarter Trading Update.
Its shares were trading at a 180p High in early February this year and collapsed to just 35p by the end of April, since when they have been creeping gently better.

Now at 64p they appear to me to be significantly undervalued, so I will put out a Target Price of 80p, which I feel is an easy short-term objective.