Listen to our latest Investing Matters Podcast episode 'Uncovering opportunities with investment trusts' with The AIC's Richard Stone here.
London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
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.
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.
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.