Charles Jillings, CEO of Utilico, energized by strong economic momentum across Latin America. Watch the video here.
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Really i cant see that i feel 5 pound will be hit by year end
Looking ripe for a short here folks - 390 might be a good entry if it can't get through. Should be in the 2s by the end of the year
Londoner7 - fair enough & good luck wherever you choose to invest instead.
Not sure why you were puzzled about the company’s comments re pledge book pricing structure though. “Improving yield” was just a posh way of saying they were putting their prices up.
In a recent post I expressed my views on the retail part of the business, which was the part in focus on the day, and concluded with the comment, “I now have enough information to maintain my interest and increase my exposure.”
I had been holding funds for an additional investment in H&T once I had some clarity on the 2023 numbers, however, when I reviewed other parts of my portfolio, I decided there were better candidates for investment.
I had been concerned by the additional funding last Nov to fund the growing pledge book, because I wondered about the merits of growth over margin. The comment in the trading update, “The Group has implemented changes to its pricing structure for pledge lending, in order to improve yield and generate incremental revenue.”, is unclear to me. The changes to the pricing structure may be positive, but when I’m unclear on something I become cautious.
The Hardman & Co Research note on the company is interesting and there’s little I’d disagree with, but the reduced dividend forecasts and wage cost pressures, which may persist under a Labour government, is sufficient for me to temper my own expectations, so rather than add to my exposure I’ve decided to exit.
I only post this to counter my previous, more bullish comment. I’ve no doubt H&T will return to 400p soon and beyond in the next few years. I just think I see better candidates for my investment.
I’ve learnt more about the pawnbroking industry than I ever expected and will look at the final numbers and prospects. But for the moment I’ll be looking in from a distance.
Hardboy - averaging down (or in your case, increasing the stake at nil cost) never did anyone any harm! Best of luck anyhow.
I actually think H&T could float back up to the £4 level faster than you might think. Assuming March’s prelims contain a reasonably upbeat outlook statement, with no further deterioration in retail trading. And also that no other fanatics come along, thinking it would be a jolly good idea to wage war on their neighbours. Peace, man, peace!
My noble Lord,
The vast majority of my investments are long term holds, companies I expect to do well long term in the prevailing environment. And when you hold shares a long time you get to know the price action, so I try to take advantage of share price volatility by increasing my stake and reducing my net investment with these short term trades. I don't always get them right, of course, but I could see yesterday's drop was over done, and once I was convinced the price was beginning to recover, I bought. Typically what I do is buy X shares for £Y, then set a limit order to sell 0.9X shares at a price which recoups £Y.
Hopefully the recovery will continue, though I expect it to take some time to get back to £4.
Hardboy - I’ve toyed with doing exactly the same on the additional shares I bought yesterday @ 319p.
I’m holding out for just a bit more price recovery though. And if it doesn’t come, at least June’s dividend payment will be that bit meatier!
Looks like a steady recovery suggesting markets felt it had been oversold yesterday. The outlook may not be as positive as it was a couple of months ago,. but this is still a very profitable growing business, and fundamentals suggest even at 400 it is undervalued. I bought a small tranche yesterday, and sold most of that tranche making 4.3% in a day. It was really to increase my holding slightly without increasing my net investment.
4.3% in a day may not sound much but (compounding it) it is equivalent to over 400 million % per annum. If I could make that sort f trade every day I'd be very wealthy very quickly.
Though I generally think brokers blow with the wind, H&T's house broker makes some interesting points below. Well worth a read. My key takeaways are:
1) Growth over the next couple of years, whilst strong, will be slower than earlier forecasts. Largely due to softening retail sales (+ changes to mix) & increased costs - notably salaries. April 24's National Living Wage increase is likely to have a knock-on effect on higher paid staff too, to preserve the differential based on their experience & responsibilities. Of course, H&T may adjust their prices or negotiate even harder with their suppliers to offset some or all of this. But the former might have to be exercised with caution, assuming continued weakness in the economy.
2) Dividends will increase less rapidly. Hardman are "only" forecasting 16.75p FY 2023. This looks slightly low to me, given the 6.5p August 2023 dividend already paid. A final divi of 10.25p would only be marginally above last year's 10p. But management may well have guided them on this, so let's see when they declare it on 5th March.
3) Current share price valuationranging from 406p to 630p, with a weighted average of 503p. Despite the "science" used to back them up, I never pay too much attention to these, especially when issued by a paid-for house broker.
https://hardmanandco.com/wp-content/uploads/2024/01/240123-Hardman-HT-Group-HAT-Growing-pawnbroking-core-will-drive-other-services.pdf
Re: others posters’ concerns about the impact of a weakening premium watch market, this WASN’T the main reason for retail softness in Q4.
As the RNS explains:
“New jewellery items and coins have an average price point of £73, whilst pre-owned jewellery items and coins have a higher average price point of £199, at higher margins. There was a significant trend by customers towards the purchase of new items, which we believe was price related. New items represented 62% of sales by volume in the quarter (Q4 2022: 53%) and 33% of sales by value (Q4 2022: 25%). In particular, sales of new earrings and coins (which attract a lower margin) were buoyant.
Sales of watches both by volume and value, grew in the fourth quarter by 15% year on year, at an average price point of £1,600. Margins are beginning to recover from mid-2023 levels.”
In short, Q4 watch sales were well up (even in value terms), with margins “recovering”.
The issue was with jewellery - notably earrings - & coins, where customers switched from pricier, higher margin pre-owned items to cheaper, lower margin new stock.
As posted previously, prolonged weakness/volatility in the premium watch sector could reduce H&T’s pledge book valuation. But with watches only representing 15% of pledge book, 85% of all pledges being redeemed, pledge valuations now being adjusted to improve their yield & a 65% loan to pledge ratio, this isn’t going to have a hugely material impact IMHO.
Uh-oh - not one of “Master” Investor’s better tips then - short term at least?
And at odds with your own views, by the sound of it.
Think I’ll be sticking to my own research, adding when H&T feels undervalued to me on a medium term basis (as it did this morning).
I think my main 2 points from today's update is that stock write-downs will happen and near term growth will slow. Re the former, the balance sheet can take the hit, for what is a relatively small part of the business. Re the latter, the low rating is discounting slowing growth. However, that is not the same thing as saying the shares are good value. The rating has been this 'cheap' on a no. of occasions in the past. For the shares to re-rate, reassuring news will be required and I don't see that happening before the next results. It may even be for much of 2024, bearing in mind the importance of Christmas trading to a retailer.
I'll be interested to see what Master Investor makes of this update in the next day or two because they were very bullish. If you don't subscribe, it is worth doing so because it provides a no. of good tips, with many articles written well. The service is also free.
Despite using limit orders, I've often been a bit sceptical about them for two main reasons:
1) They're easy to set & forget. So if market sentiment suddenly changes dramatically, you risk finding you've inadvertently bought or sold when you wouldn't have done if you'd been assessing things again now.
2) They usually get triggered quite close to your limit price (often some way off the peak fall/rise triggered by an unexpected turn of events)
However, I have to hand it to Halifax Share Dealing. I set a limit buy order for H&T last week with a maximum price of 375p. And it was triggered at 8.05am today at 319p. Google's daily share chart doesn't ever show the price dropping that low, so it must have been the initial knee-jerk reaction to this morning's RNS.
Anyhow, I'm very happy to have been able to add that low. Less happy with the drop in value of my existing H&T holding, but I still think it's a very sound business in the right place right now.
Whilst it may continue to have some negative impact, I don't fully share Uh-oh's concerns about the watch market. Loans secured on watches currently only represent 15% of the pledge book. And 85% of total pledges are redeemed anyway. So assuming loans against watches are redeemed at this same rate, you're talking potential price fluctuation exposure on 15% of 15% of the pledge book. And as londonder7 points out, they employ a 65% loan to value ratio. So I won't lose sleep over this. Though of course, a softening premium watch market - if sustained - could also hit their retail sales further.
H&T is primarily a pawnbroker.
In relation to the retail side, I note this:
In 2023 H2 retail accounted for 18% of gross profit. This year, in 2023 H1 retail accounted for 12% of gross profit.
This is from the interims:
“Retail sales for H1’2023 grew by 11% to £23.0m (H1’2022: £20.8m), which generated profits of £6.3m (H1’2022: £8.7m). Margins reduced as expected to 28% (H2’2022: 37% and H1’2022: 42%). The reduction year on year primarily reflects the change in sales mix within and between new and pre owned products, and the impact of action taken to reduce inventory levels, in particular of certain 7 higher value watch brands, where we identified changes to the sentiment of some customers towards values. Overall, demand for high quality pre-owned watches remains high.”
Today H&T said this under Pawnbroking:
“Action taken in mid-2023 to mitigate valuation volatility in respect of certain watch brands resulted in the proportion of watch-based lending falling from 17% of total lending in June, to 14% in December. The value of the pledge book secured on watches at the year end reduced by c.£1.25m relative to 30 June. Loans secured on watches currently represent 15% of the pledge book (30 June 2023: 17%).
The Group has implemented changes to its pricing structure for pledge lending, in order to improve yield and generate incremental revenue. Loan demand to date in January has been particularly strong.”
And said this under Retail:
“Trading conditions in the fourth quarter were challenging, given pressure on customers' disposable income.”
“Sales of watches both by volume and value, grew in the fourth quarter by 15% year on year, at an average price point of £1,600. Margins are beginning to recover from mid-2023 levels.
As a result of the changed mix of sales, volume and blended margin, overall sales in the quarter fell 3% by value year on year, with a consequent reduction in gross profit earned. This was particularly apparent in December, which followed a more encouraging November.”
In the full year accounts, we’ll see the resultant retail gross sales. No doubt watches are a significant sector within H&T retail business, and providing H&T set appropriate loan values the volatility of gold or watch prices is manageable. I think they know their business. Besides, 85% of pledges are redeemed, so only 15% is ‘left on the books’ after 65% loan to value ratio, which puts the pricing risk into perspective.
It was the growth prospects that attracted me to H&T last June, but I wasn’t prepared to fully buy in to a forecast 58% growth in pre-tax profits without seeing how 2023 turned out. I now have enough information to maintain my interest and increase my exposure.
Incidentally, given the higher corporate tax rate, 40% growth in pre-tax translates to about 48p 2023 EPS for a current P/E of 7.
Apologies if this is a bit of a rambling post - I'm trying to set put my thoughts and interpretations, but they are not clear cut, so I'm hoping writing them down will help clarify my opinion.
One of the great things about H&T's business is there are so many different bits to it, which don't always wax & wane in unison. On of the difficult things about understanding H&T's business is there are so many bits to it which don't always move in unison.
Pawnbroking is doing well. FX is doing well. Gold is doing well. Retail had a good November, but seems to have dropped away a bit in December. Is this a blip, or start of a worrying trend? Money transfer is subdued.
Yes they have been affected by the rise in the minimum wage. which means costs have gone up more than inflation; but this should be more of a one off hit.
Uh-Oh's great post suggested H&T's customer base is the less well off. Maybe as a whole, but they quote an average watch price of £1600, so that's not the case in all areas of the business.
So it's a bit hard to work out; but overall profits are up 40% - that is massive when talking about such a long established business. So it's been a good year. The question is where from here? If the economy is going to remain subdued, than pawnbroking should continue to do well. with much of the world intent on destroying each other, the gold price should remain fairly high, so Gold should continue to do well. The question mark hangs over retail, especially with a significant expansion plan underway.
I think the drop in share price from the high 400s to low 400s largely pre-empted this profit warning, so today's drop is over done, and I think this is a buying opportunity. 40% increase in profit gives an EPS of over 50 - so a current PE of about 7. If they hold their dividend (& I think they'll increase it) we get a yield of around 4.25%. The share price as I type is also below the net asset value. So I am convinced given all the known knowns this is a good entry price.
It would be great if they could let us know how well retail has done in January as soon as they know, but I guess we'll have to wait till the finals for the next update.
anyway, I've backed my thoughts and added a small amount just now.
As Hardboy said, today's update is a bit of a curate's egg. The bad news though, to me, is a lot more concerning. The watch market has been too strong for too long, with a considerable no. of spivs buying new watches, typically Rolex's, to flip them. When Burberry and Watches of Switzerland warned on profits recently, as with other high end / upmarket fashion and jewellery businesses, the finger was pointed at the Chinese. Today's warning from HAT reinforces a message that the watch market has seriously imploded, in double quick time. If so, there will be a big write-down in the value of HAT's stock and there could be little in the way of a recovery in the watch market in 2024.
Profits warnings, as they say, come in 3s. So soon after saying how well trading was going, it suggests that today's announcement will not be the last where forecasts get downgraded. Store openings will also probably have to go on hold.
I have traded this stock well, several times. Not this time though. Would I add to my position now? No. The fundamentals, like the low p/e and attractive yield, suggest holding. However, as with many AIM stocks, quality of earnings need to be considered and with HAT's operations focused on the less well off, for those not invested, why bother? There are plenty of other cheap and undervalued AIM stocks, as well as retailers, where newsflow is much better.
Thank you for the replies :)
Laughton - I agree. Except, had they forecast more conservatively, the share price would have been lower to start with.
That said, it was pretty obvious - well before Christmas - that few retailers were going to have a stellar end to 2023. So more caution might have avoided such an extreme market over-reaction - some of which is already starting to be clawed back.
Those "buying" and "selling" numbers are just guesses by a computer taking any deal above mid price as a buy and any deal below mid price as a sell.
Company should moderate their forecasts. As anyone can see a miss is treated really harshly. If they'd forecast more conservatively then a 40% increase in profits would have seen a big jump in SP today.
Massive 40% upgrade to profits from a year ago,gets rewarded with a lower share price....time to get in,how can this be so lowly valued? One look at the market cap and fundamentals of a very profitable business,should be enough to see the value....
Can anyone explain to me, even though selling so far is 50k but buying is 250k. And price has dropped. Am I missing something? Surely, it should rise.
No one likes a profit warning.
Charts have been pointing south for ages. Struggling to keep above support.
Hope you weren't all sucked in by your resident ramper. Talks the Talk. Stumbles about
But they were out today.
Looks like a bit of a curate's egg. I suspect the profits being ~ 10% below current forecasts will see the share price drop today, though I guess most of it is priced in.
Never mind overall Full year profits are going to be up about 40% which gives an EPS over 50, so the share price should be considerably higher.
Last year it was 18th which was a Wednesday, so Wednesday looks logical.
I can not understand this price weakness.
Well, that'll teach me to guess when the results would be out.
I expected them this morning, but it wasn't to be. Based on previous years, next most likely time is this Wednesday or the following Monday. If it isn't one of those, I'll eat my H&T!