ISP slated for upside surprise

This Junior Market stock is not the product of a sexy company that many investors follow, but it remains one of the pricier stocks on the market and is a company that could well surprise to the upside.

ISP Finance is now trading at $19.

In reporting its full year results for 2019, the company, in early 2020, showed a profit of $58 million, up from $44 million or rising 30 percent in 2018. By the time the audited report was released, profit dropped to just $23 million or 22 cents per share. The difference resulted from increased provisioning for expected credit losses with the advent of the Coronavirus in the country in the first quarter of 2020. The provision, which was originally booked as $47 million for 2019, climbed to a massive $88 million when the auditors reported the results. The audited accounts also showed a decline of $7 million in finance charges than the interim results.
According to the company’s finance director, Diyal Fernando, “we took a higher level of provisioning to be prudent,” in light of the impact the virus was likely to have on the ability of clients to service their commitments. The company does not now see a sharp increase in provisions for the current year.  To the end of September, expected credit losses provision dropped to $31 million from $37 million last year, which drove the overall provisions for the loan portfolio of $821 million to $191 million as loans grew by $32 million during the September quarter.
One of the most telling developments during the current year is the sharp reduction in staff cost. The wage bill in the September quarter fell substantially to $21.2 million from $37.6 million in 2019, with the nine months down to $80 million from $103 million in 2019. In the June quarter, the wage bill fell to $26 million, down from $33 million in 2019, with the March quarter cost at $33 million. The company has clearly focused on this area and while management at the AGM was a bit cagey on the issue, admitted that they had radically changed their modus operandi. The cost reduction is expected to be a continuing feature of the operations in the future.
Shareholders present at the AGM recommended that the company consider splitting the stock, which last traded at $19 to allow for greater liquidity and extracts more publicity from listing on the market, as well as to issue new shares to increase the share capital and therefore, have more funds for expansion. The directors indicated that they were going to look at the recommendations seriously.
Interest income fell in the September quarter to $86 million from $94 million and $276 million for the nine months to September 2019 to $264 million in 2020. Interest expenses remained stable at $7 million for the quarter and $22 million for the nine months, while operating expenses fell to $57 million for the quarter from $74 million in 2019 and $211 million in the nine months to September 2019 to $186 million this year.
The quarterly profit almost doubled from $12 million to $21 million, but the year to date rose by just $10 million to $51 million, resulting in earnings per share of 19.6 cents for the quarter and 48.4 cents for the nine months. ICInsider.com projects 85 cents per share for the full year to December and $2 for 2021 that puts the PE at 22.5 based on the current year’s earnings and 9.5 times the 2021 estimate. With the company being a strong growth entity, the stock is considered a buy for longer-term gains.
Information gleaned is that the company is in talks about a possible acquisition. The company is a small entity with shareholders’ equity of just $400 million. It provides microfinance loans mostly to workers in government operated entities and there is a position to grow profits at a robust rate.

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