Home credit provider International Personal Finance soared to the top of the mid-cap leaderboard on Tuesday, after confirming in a pre-close update that it expects to slightly exceed expectations when it reports full-year 2009 results in March of next year.
Shares in the group jumped 7% to 215.7p on the FTSE 250 index, which by early afternoon was trading down 0.6% at 8,985.2 points, after management said full-year results will top expectations if present conditions remain over the final three “key” weeks of the year. Consensus is for full-year pretax profit of £58 million in 2009, according to IPF.
Though clearly seen as a positive for the company, this news is something of a double-edged sword for the consumer, implying that IPF expects the Christmas period to result in increased requests for borrowing.
Shore Capital analysts Danielle James and Eamonn Flanagan said they expect to raise their forecasts following this morning’s announcement. The broker is currently pencilling in pretax profit of £43.8 million and earnings per share of 12.3p.
“The company has had a mixed year with first half performance hit by poor credit quality/increased impairments across all geographical divisions and the restructuring of the under-performing Hungary division,” Shore Capital wrote in a note to clients, “though quarter three showed a stabilization in impairment trends and the first quarter of profit … for the Mexico division.”
James and Flanagan retained their Hold recommendation on the basis that even following their anticipated forecast upgrades, they believe the stock is fairly valued.
At Numis Securities, however, analyst James Hamilton has a Buy stance on the stock and a price target of 261p per share.
The absence of a comment on Mexico implies management continues to expect a maiden full year profit this year, Hamilton noted, while the improving macro outlook in IPF’s markets and today’s statement suggests the fourth quarter is likely to be the third in a row of better credit quality.
Lending volumes are expected to be up in the fourth quarter but Numis does not forecast a return to fully fledged growth. “Assuming the absence of the exceptional level of impairment seen in Q1 last year, the prospect of Romania moving to its maiden profit and improved profitability in Mexico, little additional growth or improvement in credit quality in the core Eastern European markets is required to hit our £88.4 million pre-tax profit target,” Hamilton said.
Numis believes the stock’s current rating is “too cheap” for a business that is expected to see a surge in profitability once the exceptionally high levels of impairment have abated and for a group that has “a strong medium term growth profile.”
Arden Partners also rates the stock a Buy and has a price target of 255p, while forecasting £58 million in pretax profit for 2009 and over £90 million for 2010.
