Ramsdens Holdings – results next Tuesday with so much more to go for

Ramsdens Holdings is due to report its results next Tuesday, and there is so much more to go for, writes Mark Watson-Mitchell.

In the last two months, the shares of this diversified financial services provider and retailer have been edging higher – rising from 109p in mid-October to close at 139.5p last night.

That is a very handsome move already, however, I do consider that there is a lot more upside left in this stock.

What is more, some of that action could happen within days.

Extended trading period to end-September

Next Tuesday (15) will see that group declare its trading results for the six months to end-September.

We already know that the group had been trading profitably during that period.

Next week the boss of Ramsdens (LON:RFX), Peter Kenyon, will actually declare the company’s results for the extended eighteen months from 1 April 2019 to the end of September this year.

During that span it had to suffer massive store closure and an effective suspension of a lot of its trade – even so, next Tuesday could well see Kenyon report a pre-tax profit of over £9m for the year and a half. That is impressive.

A well spread business

The Middlesbrough-based group, which serves just under one million customers a year, operates four distinct areas of core business – pawnbroking loans, a foreign exchange currency exchange, the retailing of second hand and new jewellery, as well as precious metals buying and selling.

The group has some 160 stores throughout the UK, and it also has a growing online business. 

The pawnbroking and credit parts of its business are fully FCA authorised. Its loans are only transacted on a secured basis, which eliminates considerable bad debt risk.

Gold price increase has helped

During 2020, the group has been doing well with its jewellery retail business, while its precious metals segment has been very happy to see the very strong gold price driven by the Covid-19 crisis.

In mid-October Peter Kenyon announced a trading update in which he stated that in the six months to end-September store closures and ongoing restrictions to international travel had together resulted in a significant reduction in revenue – totally understandable.

But he was pleased with the precious metals trading side and its jewellery retail operations.

With its pawnbroking shops closed its punters still repaid their loans

Due to the pawnbroking shops being closed it was not doing as much pledging business, however its customers were still repaying their loans – hence the group’s cash position had risen significantly to a £16m balance, while still having an undrawn £10m credit facility. So, that showed a strong cash and balance sheet flexibility.

Group boss Kenyon pleased with resilience

CEO Kenyon stated that, “We are pleased with the Group’s robust performance during this truly unprecedented period which reflects the resilience of Ramsdens’ diversified business model.

“The performance of our FX business will continue to be heavily dependent on the status of international travel restrictions.  We are hopeful that when quarantine restrictions are eased or lifted, it will stimulate significant demand for international travel and, therefore, foreign currency.

We have made good further progress with jewellery retail both in store and online and have capitalised on increased consumer demand for competitively priced, high-quality jewellery and luxury branded watches.”

Its brokers rate the shares as a ‘buy’

Brokers Liberum estimate that the extended period will see revenues of £76.2m and a pre-tax profit of £9m. For the next year to end-September 2021, very cautiously they go for sales of £51.4m and £3.9m of profits, generating 9.8p of earnings and twice covering its 4.9p per share dividend.

The brokers rate the group’s shares as a ‘buy’ and have a 162p price objective.

I just love the pawnbroking business

I have followed this group for a very long time, due to my liking for the pawnbroking business sector. Some years ago, I built up and held a 15% stake in the UK’s largest pawnbroking operator and had researched the entire sector.

Ramsdens has an excellent spread in its businesses, it has suffered during Covid-19 but recovery in sales, profits and share price is on its way.

Next Tuesday’s results statement should be very interesting to read. 

The group’s shares are now 139.5p and offer some big upside, I see them at least 175p in due course, if not even higher.

P.S. note

Just this morning the group has announced:

“Due to unforeseen circumstances on the part of the Group’s auditor, they are unable to complete their audit work prior to Tuesday.  The Group will therefore release unaudited preliminary results for the Period on Tuesday in accordance with the previously announced timetable.”

The group’s shares fell to 132.5p on this news – which I consider to be of little importance in the overall assessment of its investment merits. 

It actually gives readers an ability to get into the shares at a much cheaper price – my 155p target price remains intact.

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

(Covid-19 Market Recovery Portfolio 24.03.20 @ 85p)