Tomorrow morning will see the UK’s largest pawnbroking company, the H&T Group (LON:HAT), declare its Interim Results to end-June.
As far I can see it this group’s shares are massively undervalued and are overdue for a re-rating.
The Business
The principal activities of the £175m capitalised group include pawnbroking, gold purchasing, retail of new and pre-owned jewellery and watches, foreign currency and other related services operated through Harvey & Thompson Limited.
Its segments include pawnbroking, gold purchasing, retail, pawnbroking scrap, personal loans, foreign exchange and other services.
Apart from being the UK’s largest pawnbroker, it is also a leading retailer of high quality new and pre-owned jewellery and watches and provides a range of financial products tailored for a customer base which has limited access to or is excluded from the traditional banking sector.
Its store estate of some 280 stores across the UK provide customers with small-sum short-term non-recourse pawnbroking loans secured by pledged personal property, that consists primarily of gold, jewellery items and watches.
H&T also buy and sell new and pre-owned gold, jewellery items and watches along with providing foreign currency exchange, international money transfer, third-party cheque encashment and watch repair services to its customers.
Sales By Activity In 2023
Pawnbroking – £90.41m – 40.9% of group sales.
The pawnbroking segment is engaged in providing secured loans against collateral (the pledge).
Gold Purchasing – £42.81m – 19.5%.
Its gold purchasing segment is engaged in buying jewellery directly from customers through its stores.
Retail – £48.58m – 22.1%.
The retail segment is engaged in retail sales of primarily gold, jewellery and watches, and the retail sales are forfeited items from the pawnbroking pledge book or refurbished items from its gold purchasing operations.
Pawnbroking Scrap – £27.91m – 12.7%.
Its pawnbroking scrap segment consists of gold scrap sales of its inventory assets other than those reported within gold purchasing.
Unallocated Foreign Exchange – £7.14m – 3.2%.
Other Services – £3.68m – 1.6%.
Latest Trading Update
On Tuesday 23rd July the group announced its Interim Trading Update.
In that statement the company noted that the six-month period to 30th June saw trading in line with expectations.
It stated that the availability of small sum credit continued to be constrained generally for consumers and demand for the company’s pawnbroking offer had been robust.
Redemptions have taken a little longer to moderate than anticipated, following the pickup of redemptions in Spring but they have moderated through June and into July.
The capital value of the pledge book (excluding accrued interest and provisions) at 30th June was £105m (30th June 2023: £95m; 31st December 2023: £101m).
The company noted that all key pledge book metrics had remained in line with expectations.
Retail sales, through the demand for the group’s high quality new and pre-owned jewellery and watches, and foreign currency revenues continued to perform in line with forecasts, while its scrap margins are improving as expected.
CEO Chris Gillespie stated that:
“I am pleased to report that overall, trading performance in the first six months of the financial year has been in line with our expectations.
I look forward to updating the market fully when we announce the Group’s Interim Results on 20th August.”
The Equity
There are some 43.99m shares in issue.
The larger holders include FIL Investment Advisors (UK) (9.92%), Close Asset Management (8.62%), Hargreaves Lansdown Asset Management (5.12%), Artemis Investment Management (5.01%), Fidelity Management & Research (4.49%), Premier Fund Managers (3.23%), Camelot Capital Partners (2.71%), Janus Henderson Investors UK (2.45%), Octopus Investments (2.17%) and Abrdn Investment Management (1.89%).
Analyst Views
Analyst Gary Greenwood at Shore Capital has a 530p a share valuation on the group’s equity.
For the current year to end-December he estimates that the company will lift its adjusted pre-tax profits to £33.5m (£226.4m), generating 57.2p (48.7p) in earnings and paying a dividend of 18.5p (17.0p) per share.
For the coming year he sees £36.7m profits, 62.7p of earnings and a 20.0p dividend per share.
Over at Hardman & Co, analyst Mark Thomas is looking for 2024 sales of £248.4m (£220.7m), with profits of £31.9m and 55.1p of earnings, with a dividend of 18.5p.
For 2025 his estimates show £267.2m sales, £34.6m profits, 59.8p earnings and a dividend of 19.5p per share.
Thomas has a 528p indicative value on the shares.
In My View
I have followed this company in its various forms for nearly four decades – even holding 15% of its equity at one stage – I love its business model, and it continues to fascinate me.
It remains an ongoing profit-growth story that is worthy of any investor’s portfolio.
Its shares, which were up to 502p early last October and are now just 397p, are significantly undervalued trading on a mere 6.9 times current year price-to-earnings.
It is almost like giving money away!