Sunday share tips: IPF, ABF

The Sunday Times's Emma Dunkley told readers to 'sell' shares of International Personal Finance, citing the still substantial uncertainty in its operating environment and the need to refinance a €397m (£367m) bond by next April.

Easing of lockdowns had given the company a reprieve, with collections returning to 92% of the pre-Covid levels over the past quarter.

The pandemic had led to a 19% drop in sales over its first half of trading while bad loans had jumped by nearly half.

Furthermore, at the time of its last update, management said the firm had "adequate resources" to continue trading for at least 12 months, but conceded that there was "material uncertainty" around its ability to remain a "going concern".

Yet analysts such as those at Shore Capital believed the stock was "cheap", although they too recommended waiting for clarity on the bond question.

Analysts at Shore Capital believed IPF’s shares were cheap but would wait for the bond question “to be resolved before considering a more positive stance”, Dunkley wrote.

Numis analyst James Hamilton is more upbeat, estimating that financial markets are implicitly pricing-in a 77% probability that the company will go under or suffer a permanent drop in capital, or both.

But Hamilton didn't share that view.

"We do not see this probability as reasonable and therefore believe IPF offers very good value," he said.

IPF "remains a high-margin market leader with probably the best fintech lending business in the world."

Still, said Dunkley, "with so much uncertainty and a hefty refinancing looming, this could be a risky bet. Sell."

The Mail on Sunday's Midas column sounded a positive note on the outlook for ABF, arguing that the company's long-term attractions remained intact.

Analysts have penciled-in a more than £100m boost to ABF's full-year profits from its food arm, which will partly offset the impact from store closures.

Indeed, the company's most recent trading update was an unexpectedly positive surprise for many analysts.

Potential risks from a second wave of the pandemic on non-essential retailers are a worry for investors.

However, "there's still time for fast-moving Primark to move its focus to snuggly loungewear and work from home staples, while the trends driving out-performance in the grocery arena look set to continue," the tipster said.

The company has also made the necessary preparations in case of a 'no deal' Brexit.

"As a well-managed business with plenty of cash and a track record of predicting consumer demand, super affordable Primark is more likely than most to keep its customers in a recession, while the groceries business should benefit from a stay-at-home winter," said Midas.

"Positive news in early November could push [the shares] higher. They might be less affordable than a Harry Potter cushion but they're still worth queuing up for."