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The wheels fell off of the International Personal Finance (LSE:IPF) bus today as its share price slammed into a wall, dropping 84.80 pence (15.7%) from 545.50 to 455.80. In an apparent attempt to not spoil Christmas, IPF withheld an important announcement until the last half hour of the Christmas Eve trading day. It is now obvious that investors did not have visions of sugar plums in their heads waiting for Old St. Nick, because the creatures were stirring as soon as the market opened this a.m.
IPF is an international home credit provider offering small-sum, short-term, unsecured cash loans, operating in the United Kingdom, Poland, Romania, Hungary, Czech Republic, Slovakia, and Mexico. Its share price has been growing steadily since January 2012 when it was around the 150.00 mark, reaching 676.00 on 13 October 2013.
Of the countries in which IPF operates, it has, by far, the most customers in Poland with some 825,000. And that is exactly where the company’s current problems are originating. On 23 December the Polish Office of Consumer Protection and Competition levied a fine of £2.4 million against IPF. The agency alleges that IPF is misrepresenting certain fees charged by the company should be calculated and stated in the “total cost of credit and, therefore, the APR figure.
IPF does not believe that those costs should be included. Quite frankly, neither do I, but no one has asked my opinion to this point. IPF is not actually required to pay the fine yet, as there does exist an appeal process, of which IPF has stated that it will take advantage.
The dramatic drop in share price, however, may not have occurred as a direct result of the Polish announcement. It more likely happened in response to the way the announcement was made. As one observer noted, “We believe that such material information should have been released before the market open, and not as the market was closing prior to the Christmas holiday.” To that I would say, “Point well taken.” Taking the higher road of full and immediate disclosure is always the better way to go. (Would someone please tell Obama … and mention Benghazi.)
Spokespersons for both Shore Capital and Numis said that they regard the fine itself as immaterial. They also share, however, a genuine concern that, should Poland impose a universal APR cap, which appears to be likely, also forcing the inclusion of the fees in the APR could severely cripple IPF’s ability to operate profitably in its largest geographic market.
It will be several months, at the very least, before we know the outcome of the appeal. Until then, investors are likely to continue to be on the cautious side. As soon as a final ruling is made, there will either be a significant show of confidence or a massive exit of those who have toughed it out. In this case, investing in IPF is most closely associated with whom one believes will win the case.
