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Monkshood,
Am currently looking into this and am curious by your comment that the reduced liabilities is because they had money from not lending it out which will impact future profits.
Does anyone know what sort of loans HAT gives out ordinarily? And do we know how much of their profits come from loaning out money?
Basically trying to work out when we can expect to see the impact of the reduced levels of lending.
And, more broadly speaking, I'm trying to estimate what their profits will look like, and why the share price has fallen from 315-20p down to 250-260p ish. Know some of it is to do with this going ex-divi on 3 Sept but there's clearly much more to it than that.
- Even Boris has come out to state 2nd National Lockdown will not happen - impact on economy too devastating.
- If regional lockdown, e.g. leicester, shops were allowed to open.
So jewelry retail suffers? Yes
Gold purchasing suffers? No - thrives more in lockdown (less employment / no furlough scheme - where do you get fast cash from? Ans - sell your gold)
Forex suffers - yes - but was only 8% of total GP in the 1st place (8% included other services including meony remittance) Pawnbroking suffers? No - thrives in lockdown
Existing Loans collection suffers? Yes likely - to what extent? On par with all other unsecured lenders.
New Loans issuance suffers? No but higher prudency
Overall, come Autumn, given higher redundancies (sadly), termination of furlough scheme, high unemployment - more people are likely to pawn their stuff and sell their gold.
Hence pawnbrokers more likely to thrive.
Not being dismissive, w.r.t FCA investigation, Simon Thompson has already commented in IC that the high interest short term loan interest element of HAT's loan portfolio is small , therefore market's reaction (late 2019) to FCA's enquiry likely to be over-reaction.
Current SP of 300-310p appears to be support level. If falls through this, it would be levels seen in late April - which is highly unlikely. DYOR.
It has not been quite as resilient as I was expecting, especially as it opened earlier than some shops. Comparison with H1 19 rather flatters given the expansion of the estate in H2. However, it was doing well in Q1, the loan book value is increasing and sales /fx are picking up along with an increasing pawn book so I am holding.
Mixed sentiment about debt reduction, on one hand 11m reduction is good and illustrates the conservative approach of the company, but it is mainly because they were not lending which therefore affects future profits.
I also hold FRP (and similar) but for this sector, along with HAT, I think that it will be a while before the full impact of covid feeds through to give positive results for these companies..
The market seems supremely uninterested in H&T today but Questor also has this as a hold with lots of positive comments. I think they were able to remain partly open as an essential financial supplier but chose not to. Any second wave might therefore not result in exactly the same shutdown. The decent gesture of providing debt holidays may also not continue and that would certainly positively impact the bottom line. Having paid all their debt off, they're well placed to grow further (unlikely) or pay increased dividends. The cautious reintroduction of a dividend payment albeit at a reduced level seems to reflect this and suggests a return to the previous level (or more); is feasible. Growing unemployment without the furlough scheme can surely only be good business for H&T.
When it moves, it tends to move quickly so monitoring closely and attempting to time an investment is definitely sound thinking.
Agree that the debt reduction / position is impressive. Especially after the acquisitions made last year.
So, to be clear, I meant the risk vs reward doesn't look great in the immediate term, with the potential 2nd wave causing shops to re-shut (they're already talking about pubs shutting next month!), which could be an issue now that they have more shops than ever before. Plus, without the furlough scheme, costs will increase vs last time as well.
Whilst, in the longer term, I stand by what I said a few weeks ago about HAT being a net beneficiary of the economic downturn.
i.e. I wouldn't invest in HAT right now but I will continue to monitor it because it could become an attractive opportunity as time progresses.
'Weak sell' was probably too harsh, so have amended my opinion to 'Hold'
All true enough however decreased footfall was always going to have an impact and I note they've completely paid off their debt ...£11 million of it! For a company with a relatively low capitalisation that's a significant amount.
The Group's balance sheet remains strong with zero net debt (30 June 2019: GBP11.6m)
- H1 profits down to £5m (vs £6.8m)
- H1 gold profits were £2.8m, up from £1.3m, due to higher prices
- H1 profits excl gold profits were only £2.2m (vs £5.5m)!
- Dividend has been slashed in half almost, down to 2.5p (vs 4.7p)
- FCA Probe still ongoing - was hoping more progress to remove this rain cloud would've been made
The profits excl gold concern me here, esp when you consider how they took advantage of the furlough scheme and cut exec pay etc. It shows that the business cannot cope without their stores being open, they were evidently loss-making during lockdown, and it isn't like there was pent-up demand when they came out the other side of it, otherwise these results would look better. And what if there is a second wave causing another lockdown? Without the furlough scheme the business will become even more loss-making than it was first time around.
Consequently, rather than being a hedge against everything going on, it now looks like it's yet another company that's a victim and vulnerable to this unpredictable pandemic.
On this basis, I remain too unconvinced at this pricing level to consider investing (the risk vs reward isn't attractive), especially when there appear to be better ways to benefit / hedge against the economic downturn (my hedges are Direct Line Group and FRP Advisory)
DYOR and good luck to you all