H&T Group – Time To Buy Is Right Now

The AGM Update issued on Wednesday by the H&T Group (LON:HAT) the UK’s largest pawnbroker, covered the four months to end April.

The £199m capitalised group’s shares responded with a 5% fall in price, some 22p, to 435p.

They closed last night at just 446.5p, showing a slight recovery.

At this level I consider that the shares are looking distinctly undervalued and very capable of a swift rise again, hopefully looking to rise quickly to match last December’s 510p.

But whatever happens the shares are cheap, full of growth in earnings and dividends and I am convinced that the share price will respond in due course.

The AGM Update

With a total store estate of 274 locations, the company is also a leading jewellery retailer, as well as handling foreign currency and gold purchasing.

At the AGM the group reported that demand for pledge lending had remained strong with January and March 2023 both being record months for lending.

That strong performance has continued as the impact of inflation on the consumer increases the need for small sum, short term loans at a time when supply of credit is more constrained than has been the case for many years.

The pawnbroking pledge book grew by the end of April to around £106.5m, up from £100.7m as at 31 December 2022.

Median loan sizes remained stable at below £200. However, redemptions have been particularly high in recent weeks, creating a short-term impact on book growth as customers chose to redeem their pledge items, often for reasons linked to family and other celebrations.

Demand for pre-owned jewellery and watches continued to be strong. 

Retail sales to the end of April were up 13% year on year.

The company delivered a record month of online sales in January 2023, with over £1m of sales in a single month for the first time.

As expected, margins continued to moderate, due to the mix of new and pre-owned items.

The company has implemented price rises across its retail jewellery ranges – especially new jewellery, where input costs have risen – and it is taking action to reduce inventory levels of certain higher value watch brands where it has seen recent changes to the sentiment of some customers towards value. Overall demand for high quality watches remains high.

Foreign currency revenues are up 10% year on year but are yet to benefit from the peak trading period of the summer months.

The company is now offering additional currencies in store and its online click and collect ordering process, which it believes will be market leading, goes live in mid-May, alongside enhanced marketing support.

Money Transfer and cheque cashing services continue to perform in line with expectations.

Management Comment

CEO Chris Gillespie stated that:

“I am pleased to be reporting on another period of continued momentum during the first four months of the financial year. Demand for our core pawnbroking loans has remained strong following record months in January and March. Our growing jewellery and watch business continues to perform very well.

Our focus is on continuing to expand the geographic coverage of our store network and we are investing both in new store openings and in refreshing existing stores.

The impact of inflationary pressures continues to be felt across the economy, for both businesses and consumers. We remain cognisant of the challenges this presents and are working hard to manage the inflationary impact upon our cost base, as we have been doing for the past 18 months.

With continued investment in scale and capabilities, along with broadening our business in the context of wider macro-economic factors, we continue to believe that the Group has an opportunity for significant growth in the medium term across all of our product offerings. Our focus is to invest in our team, optimise our estate and build-out our services to ensure that the Group is well positioned to take advantage of these growth opportunities.”

Brokers View – 580p ‘Fair Value’

Analyst Gary Greenwood at Shore Capital Markets is obviously very keen on the group, rating the shares to have a ‘fair value’ of 580p a share.

For the current year to end December 2023 he estimates that group revenues will lift 21% to £210.4m (£173.9m) while its adjusted pre-tax profits could rise 71% to £32.5m (£19.0m), boosting earnings some 55% to 57.6p (37.2p) and hiking the dividend up to 23.0p (15.0p) per share.

Already his figures for 2024 and 2025 show strong growth, with profits expected to rise to £40.5m next year and £45.4m the following year.

Those estimates see earnings of 70.3p in 2024 and 78.8p in 2025, easily covering dividend payments of 28.1p and 31.5p respectively.

Over at Hardman & Co, the research outfit’s analyst Mark Thomas has an indicative valuation of 606p on the group’s shares, based upon his estimates a fraction lower than those of Shore Capital.

My View – These Shares Continue To Look Cheap Despite Having Risen Over 34% In The Last Year

On the basis of the broker’s estimates this group’s shares, trading on 7.8 current year earnings and then on 6.4 prospective and only 5.7 times two years out.

Also massively attractive is the yield of 5% to 7% over the 2023 to 2025 trading years.

That is fabulous growth which is surely ideal for any portfolio – growth or income or mixed.

Last night the group’s shares, which peaked at 510p last December, closed at 446.5p.

I believe that Gary Greenwood’s price objective is very conservative at only 580p, I see the shares rising a lot higher over the next couple of years.

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

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