Exploit a golden value opportunity - Simon Thompson I.C.10 Mar 2020 13:33
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.
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¦ 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,
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