Yesterday, IPF (International Personal Finance) dropped around 25.1% to 353p. As I noted on 12-May-2013 (http://is.gd/UTKDq3), they provide short term credit to 2.4m customers in Eastern Europe and Mexico, an outfit I described as MORALLY CHALLENGED.
The cause for yesterday’s drop was an RNS issued by IPF “IPF notes recently proposed revisions to draft total cost of credit amendment law in Poland”. The upshot of which is that Poland wants to impose an upper limit on interest rates, and door-to-door credit companies like IPF will be adversely affected by the news. It must have been charging well over the odds given the precise nature of its business.
I recall that IPF was a top position in a fund that was highly-rated by Citywire at around the time I mentioned it. Its earnings growth has been excellent of course, in the same way that the Mafia enjoys high operating margins too. I gave the company a wide berth, as I have seen enough of those with “morally challenged” operating activities cost investors a packet. Cattles, ABM (Albarlmerle & Bond) HSV (Homeserve) and CPP (CPPGroup) spring to my mind immediately. I’m sure there are many others that I had been aware of at some time.
On 12 May 2013, the share price was around 509p. Now it is 365p – a loss of around 28%.
The problem with companies like IPF is that they make a lot of money, until they don’t. Regulators eventually wake up, either damaging or killing the company.
To be fair, though, if you had invested in IPF 5 years ago, you would be up 78.8%, compared with the Footsie of 31.0%. So, as ever, timing can affect your investment outcomes dramatically. It’s worth bearing in mind, though, that long-term investors can expect shares in dubious companies to fall 25% in a day.