Been researching this and RFX18 Jul 2020 20:51
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
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