RE: Just tipped in Investors Chronicle6 Jun 2024 06:37
Simon Thompson's article in full, from the e version of Investors Chronicle. I'd expect this article will go into this Friday's weekly magazine as well - hopefully get some more private investors to buy into this solid growth, decent dividend paying stock.
This bargain stock could deliver another year of record profits
The lowly rated financial services group is benefiting from buoyant precious metal trading, a rising pledge book and resilient jewellery sales
Middlesbrough-based financial services group Ramsdens Holdings has delivered a bumper first-half performance that underpins expectations of another set of record annual profits.
In fact, with first-half pre-tax profits up 8 per cent (£0.3mn) to £4mn, house broker Liberum Capital notes that there is scope for outperformance of its full-year estimate of £10.5mn, which only embeds 4 per cent (£0.4mn) annual growth. I would agree, especially as the directors are clearly confident of delivering another record year of profits. They have every reason, too.
Reasons for optimism
Firstly, cost of living pressures mean that more customers are now looking to sell unwanted jewellery, gold and precious metal items to raise cash. The trend is also being driven by greater media coverage and a buoyant gold price, which have increased consumer awareness.
First-half revenue from these activities increased by 35 per cent to £14.1mn and boosted divisional gross profit by a quarter to £5mn. Trading prospects remain overwhelmingly positive, so much so that Liberum raised its full-year divisional gross profit estimate by 7 per cent to £9.9mn, or a fifth of the group forecast of £49.4mn.
Secondly, the challenging economic conditions and weaker consumer credit competition in the pawnbroking space have resulted in rising numbers of new customers willing to pledge their assets as security against a six-month high interest loan. Ramsdens’ pledge book increased 12 per cent year on year to £10.8mn, with the average loan value of £346 rising 10 per cent. With restrictions on other forms of small sum credit – peers such as NSF, Amigo and Morses have all run into difficulties due to company-specific or regulatory issues – and household incomes being squeezed by higher bills, there is real potential for the segment to outperform Liberum’s full-year gross profit estimate of £11.4mn. In the first half, divisional gross profit increased 15 per cent to £5.6mn.
Thirdly, the jewellery business delivered 6 per cent higher gross profit of £6.7mn on flat revenue of £17.5mn despite weakness in premium watch sales, which account for half of online retail purchases. This was mainly caused by the group’s third-party retail finance provider reducing approval rates for big-ticket purchases (more than £2,000) as it was in the process of exiting the market.
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