Ramsdens Holdings – Bouncing up again

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Ramsdens Holdings – Bouncing up again

This coming Wednesday will see Ramsdens Holdings (LON:RFX) publish its interim results for the six months to end March this year.

We have already had an early April-issued ‘strong momentum’ Update pointing to a recovery in the group’s trading, so we do not expect any shocks – unless the UK foreign travel issues help to reduce some of its current year prospects.

Ramsdens is a growing, diversified, financial services provider and retailer, operating in the four core business segments of foreign currency exchange, pawnbroking loans, precious metals buying and selling and the retailing of second hand and new jewellery.

The Business

With its headquarters in Middlesbrough this group has 154 of its own stores and three that are franchised out.

It also has a small but growing online presence.

The firm is FCA authorised for its credit broking and pawnbroking activities and it does not offer unsecured high-cost short term credit.

The company offers FX services through its branch network, as well as online.

It offers loans secured against jewellery items that it stores during the loan term. The company retails new and second-hand jewellery online and through its managed store network.

It purchases unwanted jewellery items and scrap precious metal from customers, and the purchased items are retailed through the branch network or smelted in-house for sale in wholesale markets.

In addition, the company also provides services, which includes cheque cashing, Western Union money transfer, credit broking and it receives franchise fees.

Sales Revenues

The UK is the sole source of its revenues.

On a sales per business basis, last year’s £40.7m turnover was broken down as follows: retail jewellery 44.9%, precious metals 25.5%, pawnbroking 18.5%, foreign currency margin 8.4%, other financial services 2.8%.

Its Strategy

The strategy has been focussed upon growing profits from the existing store estate through investment in the foreign currency exchange and jewellery retail segments, by acquiring pawnbroking loan books and optimising cash generation.

The ultimate aim is the creation of a well-balanced, resilient business from which to generate further growth, both organically and by acquisition.

Key Strengths

I could not have put this better than the words of the group itself when describing its attributes.

The Directors believe that the Group’s key strengths are:

  • a good record of cash generation and a strong balance sheet;
  • an experienced and motivated senior management team with a clear growth strategy;
  • a recognised brand benefiting from significant investment including sports sponsorship and TV advertising;
  • a diversified and complementary offering of products and services appealing to a broad demographic;
  • a well invested branch estate and central infrastructure to support growth, including a market leading IT system; and
  • a large, growing and high repeat customer base.

From this strong platform, the Directors believe that it will continue to progress through the unprecedented COVID-19 impacted trading conditions and when the ‘new normal’ trading conditions return, have a real opportunity to grow the business in the markets in which the Group operates.”

The Equity

There are 31.64m shares in issue.

The larger holders include Downing LLP (12.4%), Otus Capital Management (12.2%), Close Asset Management (11.2%), Hargreaves Lansdown Asset Management (10.1%), Interactive Investor (7.49%), Rowan Dartington & Co (4.97%), Canaccord Genuity Wealth (4.74%), Peter Kenyon (3.64%), LGT Capital Partners AG (Investment Management) (2.45%) and Mike Johnson (1.70%).

Brokers View

Analyst Shailesh Raikundlia at the group’s brokers Liberum Capital rates the company’s shares as a ‘buy’.

For the current year to end September he is estimating that the group will see its sales rise from £40.7m in 2021 to £58.9m this year, with pre-tax profits leaping tenfold to £6.0m, generating earnings of 14.8p (1.2p) and double covering a 7.4p (1.2p) dividend per share.

Jumping forward for the coming year he goes for £66.9m sales, £7.5m profits, 18.5p of earnings and a 9.2p per share dividend.

The question is now – will Raikundlia amend his current and prospective year estimates after this coming Wednesday’s interim results announcement, and will that announcement make any note of the current travel hassles?

My View

I do like the shape of this £62.5m capitalised group.

The shares, which topped out at 250p in early December two years ago, have been down to around 82p at the start of the Covid-19 pandemic.

In fact, I selected the company as one of my ten stocks to play in The Master Investor CV19 Market Recovery Portfolio on 24 March 2020 when they stood at just 85p to buy.

Since that selection the shares have risen 132.35%, despite having been up to 215p in the last year.

Now at 197.5p I believe that the shares of Ramsdens Holdings are an appealing speculation on much better results over the next couple of years or so, in which time I see them going back above the 2019 250p High.

(Profile 07.11.19 @ 204p set a Target Price of 250p*)

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


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