Loans provider International Personal Finance (LSE: IPF) has seen a huge 14% share price jump today. This increase comes after it has already more than doubled in the past year.
What is going on here?
Upbeat update
The latest increase follows a company release earlier today, where it said that “operational performance continues to be positive”. It also said that while it had expected weakening in performance in the first quarter of 2021 because of the pandemic, the actual performance has been “very strong”. It now expects a “significantly stronger rebound in profitability in 2021” than it had earlier.
I think these are some of the most positive remarks I have seen from any company I’ve covered since the lockdown eased. Clearly, it has also had an impact on investor sentiment.
The story so far
But the International Personal Finance share price was gaining ground even earlier. Like all financials, it was hit hard by the lockdowns last year. It was probably hit even harder than most, because it lends to customers who are otherwise less likely to get credit. It provides small, unsecured cash loans for everyday necessities in emerging markets like Eastern Europe and Mexico.
As it restricted lending during the pandemic, the company’s loans issued almost halved from the year before, its revenues tumbled, and it ended up clocking a loss. However, investors gave its share a thumbs up anyway when it released its full-year results. This was probably because it became profitable in the second half of the year once again.
These results were released in March and followed by a positive trading update in April, when the share price rallied again. In a nutshell, it is evident the International Personal Finance share price is highly responsive to positive company developments. We have seen it three times this year.
The downside
The easing of lockdowns, expected improvement in the economy, and its own outlook indicate clearly that the company will likely show robust growth this year. I am, however, cautious of a few risks as well.
First, the pandemic continues. Its severity may have reduced, but we have not yet put it behind us. Also, International Personal Finance is still doling out loans cautiously because it has a focus on profits. This means that the amount of credit issued could remain restricted.
Further, the risk of bad loans remains. In its trading update, International Personal Finance says that impairments as a percentage of revenues have reduced in the first quarter of 2021 compared to full-year 202 numbers. But I think they are still quite high at 32% and also higher than the 2019 levels.
My takeaway for the International Personal Finance share price
On balance though, I am positive on the stock for the medium to long term. It has a history of strong performance and has rebounded fast from the pandemic. I also like that it serves the social goal of creating greater financial inclusion. It is a buy for me.