Looks undervalued8 Jul 2020 14:31
Low on the important metrics (PE of 7 and EV/EBIT of 5-6). Some of that must be because COVID will have a huge and somewhat irreparable impact on the Foreign Currency Exchange segment of the business (that has accounted for 35-40% of income previously), some of that will be because their stores have been shut during lockdown, and some of that will be because they’ve suspended their dividend.
However, on the other hand, the pawn broking part of the business should do incredibly well during the economic downturn. Traditional lenders have become super cautious (as evidenced by what we’re seeing in the mortgage lending market, where earnings ratios have been reduced, and high LTV mortgages have rapidly disappeared) and there are millions of people who are going to financially struggle once the furlough scheme comes to an end sadly.
When that happens there will be a rush of people eager to pawn off jewellery they don’t need, and just look how the value of gold has rocketed in recent months – rising from about 30-40% from April 2019 to April 2020. https://www.bullionbypost.co.uk/gold-price/10-year-gold-price-chart/
Therefore feel the Non-currency-exchange segments of the business should grow in H2. Not by enough to make up for the huge fall in the for in the currency-exchange segment this year but by enough to see revenues remain £50m+ I’m sure (vs £59.5m in the 2019/20 year). Revenues should realistically reach new highs (£60m+) in the 2021/22 financial year; and we can expect the dividend to reinstated as RFX’s pawn broking business continues to thrive off the economic downturn.
On this basis, I reckon we could see 200p in the next 12 months, and something closer to 300p in the next couple of years.
Not sure when to time an entry but I do believe there’s a disconnect between the stock market and the real world at the moment, with the stock market largely operated as if there is not an economic downturn happening, perhaps due to governmental schemes (the furlough scheme especially) masking the true impact. Sooner or later the market will panic and you’ll have so many funds/trusts/etc having to sell out of so many different companies at once, and looking to re-deploy their capital in companies which look as though they will benefit out of the downturn like RFX.
Will try work out how RFX compares to its peers in the sector but yeah I like the look of this one. GLA.
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