Emerging markets-focused credit company International Personal Finance (LSE: IPF.L - news) loses around a fifth of its stock market value in heavy volume on Friday after the company gets hit by a fine in Poland.
International Personal Finance shares are down by 18.9 percent at 439.20 pence in early morning trading, making the stock the worst-performer on Britain's FTSE 250 mid-cap index. Trading volumes in the stock come in at 2.7 times above the average 90-day amount.
Late on Dec. 24, International Personal Finance said it had been fined around 2.4 million pounds ($3.94 million) by Polish authorities over the way it calculated some of its APR (annual percentage rate) lending terms. The company added it would appeal against the decision.
Analysts at Numis Securities and Shore Capital (Other OTC: SHOCF - news) both say the blow could presage a bigger hit to International Personal Finance's overall Poland business, which is the company's largest profit centre.
"While the fine itself is not material, in our view, the proposed inclusion of the preparatory fee and home collection service charge in the APR calculation has potentially much wider implications," says Shore Capital analyst Gary Greenwood.
"If the revised APR calculation is imposed in Poland it could be potentially devastating for the company's business model in Poland, we think, as it would severely restrict the pricing structure. As Poland is IPF's largest profit centre, accounting for just over half of the group total, this is clearly a big issue," adds Greenwood, who has a "sell" rating on the stock.
Numis Securities' analysts also agree that changes to how International Personal Finance works out its APR terms in Poland could have a major impact on the business going forward.
"Of greater concern is the discussion paper which is looking at changing the interest rate cap to a cost of credit or APR cap. These two combined in a worst case scenario with a low APR cap could fundamentally impact the Polish business which accounts for 45 percent of IPF's profit," they write in a note.
In spite of Friday's stock market slump, International Personal Finance shares remain up by around 18 percent since the start of 2013.
($1 = 0.6088 British pounds)
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