The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
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When I last checked, rfx had a much larger proportion of its revenue derived from currency exchange. I thought that this may take longer to recover than HAT's offerings.
I still think it is a good mid/long term investment and remain invested.
I wonder if the recent fall is a response to the situation at AMIGO, although the two are by no means comparable? If I recall, HAT only had 24m in interest payments on their entire HCSTC loans over the last 6year period. They seem to be very rarely mentioned on Debt Camel which is the main got to site for people looking for refund information, so I take this as a positive.
Looks like I’ve cursed this share with my presence in almost record time with a 5% in 2 days hahaa
Lack of mojo suggests sub 300p could be on the cards
Watching with intrigue and curious to hear opinions about what I wrote below
HAT in the news...
https://www.thisismoney.co.uk/money/saving/article-8536503/Having-clear-boost-finances-4-300.html
I'm definitely going to invest in one of them soon because I'm convinced the pawnbrokers will do incredibly well in the years ahead, and will serve as an excellent hedge against a second wave or a downturn in the stock market in general.
Looking at trailing multiples I wasn't blown away by a EV/EBIT of circa 11 however, based on my back-of-the-fag-packet calculations, it looks as though there should be ~20% organic growth in a "normal year" which would mean the forward EV/EBIT ratio is about 9-9.5, the forward PE ratio is less than 7, and the dividend will be reinstated as well.
The growth may accelerate further still, given that demand for pawnbroking will increase during the downturn and gold prices are comfortably higher than prior years.
The company is also rather acquisitive from what I can see, buying the former Money Shop business and the former A&B business. The former (65 stores focused on foreign currency exchange) will probably not do so well in the short term but perhaps they could be temporary repurposed to take advantage of the expected increase in demand for pawnbrokers. The latter was a truly excellent acquisition which I believe is the primary reason why HAT exceeded all expectations of its Revenue, Profit, EPS expectations in 2019 and had a stellar H2.
It is worth noting the A&B acquisitive growth all came in Q4 and therefore we are yet to see the full effect of this.
Looking at the negatives:
- The rent for their 253 stores during the approx 2 month lockdown period would still have needed to be paid I presume.
- The Foreign Currency business will do comparatively poorly but, at least prior to the Money Shop acquisition, this accounted for a v small % of revenues anyway
- HAT have had to halt all high-cost-short-term unsecured loan lending. However this only accounted for 4% of revenues anyway.
- The FCA Probe hangs over this share like a cloud. I do not believe the FCA will take any material action against HAT but the fact this share has traded beneath its Oct 2019 highs of ~400p suggest it is still having some sort of impact. However, on the other hand, this is perhaps why there is such an opportunity here.
Recent positives:
- HAT have taken advantage of govt schemes (notably the furlough scheme) and cut exec pay by 50%.
- HAT have taken advantage of incredibly high gold prices
- Consequently "net debt has reduced" during this lockdown period, which is remarkable.
Taking everything into account, I believe this is a high-growth share (with both high organic and acquisitive growth) trading at fair-to-low value (perhaps because of the ongoing FCA probe), so is worth investing into.
DYOR
Agree it looks good. And would I be correct in thinking that the FCA Review has finished / is coming to end with a positive outcome too?
Agree, that the update appears positive. And would I be right in thinking that the FCA Review has concluded in a positive way too?
They run a tight ship, although revenues were 'materially impacted ' net debt has been reduced and they are setup to expand their pledge book going forward.
FCA - still unresolved but moving forwards.
Very happy with this update.
nice blue start today
That's a nice summary ChunkyD, I would add a very competent management team to your list.
I have built back my holding in this now that all of the stores have opened again (although they have been trading online since early April).
HAT has always been considered a good counter cyclic holding especially with high POG. I was concerned about the potential loss of foreign currency income but it is actually quite a small part of the total revenue. Hopefully they will also soon reach a resolution with the FCA over their HCSTC loans, without this it would likely have settled at well over 400 pre -covid.
Several tailwinds blowing for H&T at present:
1. Rising gold price means gold trading margins up and held stock of jewellery worth more.
2. Falling incomes means more demand for short term lending
3. Doorstep lenders Provident and Morses business model looks shaky in a world of social distancing. So reduced competition.
4. Rents falling so can renegotiate lower on lease renewal
5. Business rates freeze and likely downwards at next review.
6. Banks reluctant to expand unsecured lending in current environment.
7. Rival pawnbroking chain gone bust and sold best shops and pledge book to H&T at fire sale prices. By far the largest chain with strong brand. Average pawnbroker owns 4 shops. H&T has 240 odd.
8. Payday loan industry has vaporized. Wiping out a source of poor credit finance.
9. Canny investors Artemis have a significant holding.
10. V conservative balance sheet so could easily leverage at low rates to expand loan book once FCA review complete.
The contribution from H&T’s (HAT:338p) acquisition of 65 stores trading as The Money Shop (TMS) last summer, and a £8m pledge book purchased from Albemarle & Bond in the autumn, helped the pawnbroking and financial services group to report a 45 per cent surge in annual pre-tax profit to £20.1m on 15 per cent higher revenue of £101m. However, pre-tax profits still came in 6 per cent ahead of Numis’s forecasts and that’s after the house broker pushed through 12 per cent upgrade in October.
H&T’s pledge book rose from £52m to £72.2m last year, buoyed by an eye-catching 15 per cent organic growth. Clearly, the buoyant gold price environment is beneficial to the pawnbroking business, which makes up 39 per cent of H&T’s gross profits of £101m. Indeed, finance director Richard Withers notes that the TMS pawnbroking business “is exceeding our expectations”. It’s also beneficial to gold scrapping and gold purchasing activities, which between them increased gross profit by more than half to £8.2m. Mr Withers says that every 10 per cent move in the gold price adds £2m to the bottom line from these two activities. That augurs well given that the gold price has surged by a further 11 per cent to £1,272 per oz since the start of 2020.
It’s worth flagging up that 17 per cent of H&T’s personal loan book of £16.6m consists of near prime loans and only 10 per cent is high-cost short-term credit (HCSTC) unsecured loans, all of which will mature by the year-end. H&T continues to work closely with the Financial Conduct Authority (FCA) following a regulatory review of certain aspects and files of the HCSTC business. Even after taking into account the cost of the FCA review, Numis expects pre-tax profit to rise by a fifth to £24m to boost earnings per share by 11 per cent to 48.8p and support a payout per share of 12p, up from 11.7p in 2019.
H&T has paid out dividends of 27p a share since I included the shares, at 289p, in my 2017 Bargain Shares Portfolio. On a forward price/earnings ratio of 6.8, trading in line with book value and offering a prospective dividend yield of 3.6 per cent, the shares remain a buy.
https://www.investorschronicle.co.uk/comment/2020/03/10/exploit-a-golden-value-opportunity/?utm_campaign=Copy%20of%20ICDailyEmail_new2016&utm_source=emailCampaign&utm_medium=email&utm_content=
¦ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com,
I agree, it will need to see the back of the FCA before it fully re-rates to its 'true value' though.
The Surrey-headquartered pawnbroker reported a GBP20.1 million pretax profit for 2019, 46% higher than 2018's figure of GBP13.8 million.
Revenue jumped 12% to GBP160.2 million from GBP143.0 million, including a 26% rise in Pawnbroking net revenue to GBP39.0 million from GBP30.9 million. The firm's gross pledge book was 39% higher at GBP72.2 million compared to USD52.0 million.
H&T lifted its total dividend per share by 6.4% to 11.7 pence from 11.0p.
H & T (LON:HAT)
Share price: 390p (up 7% today, at 11:34)
No. shares: 39.7m
Market cap: £154.8m
Trading update
H&T Group plc ("H&T" or "the Group") the UK's leading pawnbroker, today announces a trading update for the financial year ended 31 December 2019. H&T expects to report its results for the year ended 31 December 2019 on 10 March 2020.
This is an interesting one. The share has now recovered fully from its setback in Nov 2019 (FCA investigation & changes to lending practices). Graham wrote about that here, correctly concluding that only a small part of HAT's business was affected, therefore it wasn't too serious. Good call Graham! Anyone who bought on that spike down to 280p is looking very smart now! Sometimes it can pay to catch a falling knife, just not that often.
Trading for 2019 ended up being good;
Following strong second half-year trading and a positive performance of the recently acquired Money Shop and Speedloan business assets, H&T expects the full-year profit before tax to be at the top end of current market expectations.
The narrative reads well, I won't repeat it here.
FCA - no new information, it's "working closely" to review high cost, short term credit.
My opinion - the valuation metrics still look great value, even after the recent recovery in share price. StockRank of 96 too - worth a fresh look maybe?
A very positive update. It will be nice when the FCA overview is out of the way but even with the higher risk loans suspended they are doing very well.
From his blog on Thursday 24/1:
"H & T has proved a great trade, a super statement yesterday saw the shares soar. I'm going to carry on holding as it could break up over 300 on its financials"
Yep. So he can be guaranteed a rise whereupon he'll then sell them.
Suspect the brokers are on the lookout for NT buys so they can inflate the price.
I see that Robbie Burns, the naked trader, reported yesterday that he has picked up some HAT shares with a view to them heading back up to 300p. I assume his followers have been buying.
Maybe Sebs question below ? I can’t really work out if this could come into the category where massive compensation claims could be triggered.
Guys, I'm a amarket nooby, looking for bargains. Been looking over company news for HAT and can't figure out why the big sell-off. Is it something to do with Black Rock's stake in the company?
Recently bought in here for the Divi and to balance the portfolio with a recession play. Happy to hold.