H&T Group – Trash or Treasure?

Don’t miss this one!

Cheeky investors should seize the opportunity that has been presented by the market in the shares of the largest firm of pawnbrokers in the UK, which is the H&T Group (LON:HAT).

Eight market trading days ago saw the company provide a Trading Update for the year to end December 2022.

It noted that trading performance had remained strong through the fourth quarter of the year, continuing the momentum seen across the business throughout the year. 

Furthermore, its Board remained confident that the full year results will be in line with market expectations.

Since that announcement on Wednesday 18 January the group’s shares have fallen back from 493p to close on Friday night at 429p.

That fall is way out of line and offers quick advantage takers a very useful cheap buying opportunity.

Take a quick look at my descriptive article published on 6 July last year.

then I believe that you will agree with me that the shares offer some big upside in value.

The Business

H&T Pawnbrokers began serving communities in London in 1897. Since when it has expanded to become one of the oldest and leading pawnbrokers in the UK.

In May 2006 the company floated on AIM, since when it has accelerated its development by adding new products and services, expanding the store network and developing a complete online service.

Today the £192m market capitalised company provides a range of simple and accessible financial products tailored for a customer base who have limited access to, or are excluded from, the traditional banking and finance sector.

As part of its development the group has diversified its product portfolio, which now includes pawnbroking, unsecured lending, jewellery retail, cheque cashing, Western Union money transfer and Foreign Exchange.

The Business Parts

The company, which now has some 267 stores as well as a very good online service, operates through six segments: pawnbroking, gold purchasing, retail, pawnbroking scrap, personal loans and other services.

Its Pawnbroking (36.7% of the group’s 2021 sales figure of £122m) is engaged in providing secured loans against collateral (the pledge).

Its Retail segment (29.7% of sales) is engaged in retail sales of gold and jewellery, and the retail sales are forfeited items from the pawnbroking pledge book or refurbished items from its gold purchasing operations.

The Gold Purchasing segment (16.8%) is engaged in buying jewellery directly from customers through its stores.

Its Pawnbroking scrap segment (9.0%) consists of gold scrap sales of its inventory assets other than those reported within gold purchasing.

The group’s Other Services represents 4.5% of group sales, while Personal Loans accounts for 2.3%, with others making up just 1.0%.

The Equity

The group has 43,850,484 shares in issue.

The larger holders include Octopus Investments (11.56%), Fidelity International (9.96%), Close Brothers Asset Management (8.71%), Canaccord Genuity Wealth Management (5.64%), Artemis Investment Management (4.92%), JP Morgan Asset Management (4.39%), Stichting Value Partners (4.28%), Hargreaves Lansdown Stockbrokers (3.73%), Interactive Investor (3.65%), Premier Miton Investors (3.29%) and Camelot Capital Partners (2.71%).

Broker’s View – ‘Fair Value’ Of 580p Per Share

Analyst Gary Greenwood, at the group’s NOMAD and broker Shore Capital, has a ‘fair value’ rating on the company’s shares of 580p.

The 2022 finals will be announced on 7 March, ahead of which Greenwood is currently estimating that the group increased its adjusted pre-tax profits by over 90% to £19.1m, taking earnings up to 36.3p (20.8p) and amply covering a 25% advanced dividend to 15p per share.

But that is just last year’s estimates!

For the current year to end December Shore Capital looks for profits of £32.6m, earnings of 57.9p and boosting its dividend over 50% to 23p per share.

If that is not exciting enough, then consider the very early estimates for 2024 of some £39.2m profits, 69.6p earnings and a 28p dividend per share.

My View – Back To 500p Within Four Months, If Not Sooner

The group raised around £16.9m of fresh fund last September, then at 425p a share, to fund the improvement of its IT and merchandising systems, with two key executives taking up stock in the issue.

The shares since then have been up to 510p in the market, so the current fallback in price is far too heavy in my view.

Since the bullish Trading Update only 648,260 shares have been traded in those eight market days, which is not a lot, but then the market is none too clever generally.

Even so, on the basis of Shore Capital’s estimates for this year and next, I believe that the shares of the H&T Group represent a cracking investment with very attractive yields over the two years to come.

On the basis of Shore Capital’s estimates the group’s shares, at 429p, are trading on 11.8 times 2022 earnings and yielding 3.5%.

For the current year they are on only 7.4 times earnings and a 5.4% yield, while for 2024 the pe ratio falls to a mere 6.2 times and on a healthy 6.5% potential yield.

With the 2022 finals due in early March and then the AGM Update in mid-May, I consider that the shares will gain investor attention and rise easily through 500p again.

(Profile 06.07.22 @ 332.5p set a Target Price of 400p*)

(Asterisks * denote that Target Prices have been achieved since Profile publication)

Mark will be appearing the Master Investor Show on the 18^th of March. Get your free tickets here.