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Whilst I normally have total confidence in H&T's management, the £11.3m acquisition of selected Maxcroft assets looks dubious & EXTREMELY overpriced to me.
As far as I can see, Maxcroft only has one outlet. Google it. It looks like a small converted house in a largely residential, non-retail area. And the main acquisition is their pledge book, valued at "just" £6.1m. Plus they'll assume the cost of Maxcroft's five (yes, only five) employees.
I get that Maxcroft's customer profile offers diversification, with a far higher pledge loan mean value. I also realise its employees may have some expertise in targeting a different customer demographic. But £11.3m? Really?
That said, so far the market has reacted positively to this morning's RNS, including news of an additional £25m financing at relatively high fixed interest rates.
If the share price nudges slightly further up, I'll be banking profits on the additional shares I bought at 319p when their TU was first released on 23 January. But that would still leave me with a sizeable holding here, as I remain confident in H&T's 1-2 year prospects. Just don't want to be over-committed to any one company.
I agree, lord, skipping through on first reading it seemed the new loan is a high fixed rate, and it's double what they need in the short term for the acquisition. It was only last July they increased their overdraught limit by £15m. I can only hope they know what they are doing and the investments they are making over the coming month will yield much better returns than the cost of borrowing.
And again, what other assets are being purchased apart from the pledge book? There is an awful lot of cost in the extra bit, what is the value? Maybe the site?
Like you I am reassured that the market reaction so far is positive.
Hardboy - according to Thisismoney, H&T HAVEN'T acquired the Ilford property freehold:
"H&T will enter into a lease in respect of the store."
www.thisismoney.co.uk/money/markets/article-13108401/Pawnbroker-H-T-Group-acquires-pledge-book-Essex-based-Maxcroft.html
In terms of the new financing, according to UK Investor Magazine: "This takes total funding to £85m. Some of the new capital will be used to pay down the revolving capital facility (RCF) with Lloyds".
That Lloyds RCF was priced at 2.4 to 3.3 percentage points above the sterling overnight interbank average rate. Sterling's overnight rate currently stands at 5.19%, so I can't see them saving a great deal there.
It's all starting to look a bit more haphazard to me. Funding has been increased multiple times in recent months, some of which now looks like it's going to be paid down in favour of using yet another new lender. Fair enough if it saves them money overall I guess. But why keep raising finance piecemeal? To me, it's beginning to come across as a bit more tactical than strategic - more whimsical, less planned.
Personally I'd have preferred them to raise any additional capital by offering fixed rate preference shares to existing investors. I, for one, would have happily subscribed to H&T preference shares offering, say, a 7.5% annual dividend, redeemable at par after 5 years. But I suppose this might be a less predictable/more costly & cumbersome way for H&T to raise the capital it feels it currently needs.
I think today's market reaction is more in line with ours yesterday. I really hope the finals next month inject some confidence back into the share.
Hardboy - odd, as SP opened slightly up this morning before dropping at around 9.30am.
Hard to know if the fall's down to a new bit of broker research, a significant fund manager sale or just a delayed reaction to yesterday's RNS. There's certainly been more active trading today than normal, but values generally look small. The highest recorded trade I can see so far was for £55,645 at 9.30am (i.e. around the time the price fell significantly): www.londonstockexchange.com/stock/HAT/h-t-group-plc/trade-recap
Perversely, it could be that investors are slightly spooked by the news of yet another round of financing. Which I actually view as a positive. Amongst other things, it suggests the pledge book is continuing to grow and that H&T is therefore requiring ever more capital to lend out. Since it lends at far higher interest rates than it borrows, a growing pledge book should correlate - at least in part - to growing profit.
So in short, I'm not unduly bothered at this stage. Though I do still think yesterday's acquisition announcement was questionable to say the least. And that presentationally, the piecemeal funding increases have - perhaps unjustly - dented sentiment. As you say, providing March's update doesn't show further deterioration in H&T's retail sales and the outlook sounds reasonably positive, confidence should start to return.