H&T Group (LON:HAT) – At Least A 30% Upside
You cannot persuade me that the shares of this pawnbroker and jewellery retailer are expensive.
In fact, I consider them to be extremely cheap around the current 387p level.
They fell back in price subsequent to the issue of its Trading Update for the six months to end June, easing back 5%, off some 20p a share, after the statement.
It declared that trading across the group had been in line with expectations.
The company reported that demand for its small ticket item pawnbroking had been ‘robust’ during the first half.
However, redemptions appear to have taken a little longer to moderate after the stronger pick-up levels in the first four months of the year.
I just love the basis of the pawnbroking business and can only see HAT expanding its business substantially over the coming years.
Its pledge book, which was £95m this time last year and then up to £101m at the 2023 year-end – is now over £105m and that is without allowing for accrued interest and provisions.
On the other side of the £168m capitalised group’s business, its retail sales in high quality new and pre-owned jewellery and watches are up to expectations, margins on its scrap are improving while its foreign currency revenues have continued in line with forecasts.
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 20 August.”
Analyst Gary Greenwood has current year estimates out for adjusted pre-tax profits of £33.5m (£26.4m), lifting earnings up to 57.2p (48.7p) and easily covering 18.5p of dividend (17.0p) per share.
He has a ‘fair value’ of 530p on the group’s shares
For next year he has pencilled in £36.7m profits, 62.7p earnings and paying a 20.0p per share dividend.
At around the current 387p price that puts the shares out on a very low 6.7 price-to-earnings ratio, while yielding 4.8% – which in my view offers at least a 30% upside to see them up to 543p.
Having been up to 502p in the last year, the shares are cheap now, especially when considered against some of the overpriced trash elsewhere in the market.
This is a good solid business, whose shares deserve to be trading in the 10 to 12 times earnings range, and even then, still look cheaper than the market.
(Profile 06.07.22 @ 332.5p set a Target Price of 400p*)
(Profile 30.01.23 @ 429p set a Target Price of 500p*)
Luceco (LON:LUCE) – Better Margins And Increased Revenues
The H1 Trading Update from this supplier of wiring accessories, EV chargers, LED lighting, and portable power products, reported a strong performance.
Sales in the six months to end June were up 8% at around £109m, while the group’s adjusted operating profit was some 15% better at £12.5m.
CEO John Hornby stated that:
“Luceco performed strongly in the first half against a challenging market backdrop.
The Group’s diverse portfolio and channels have ensured that we continue to deliver progress, with adjusted operating profit up around 15% in H1 2024.
Our acquisition of D-Line, which completed in February 2024, is expected to add circa £15m of sales this year and has integrated well into the Group.
The balance sheet remains strong with debt levels towards the lower end of our target range, giving us flexibility to pursue new organic and M&A opportunities in line with our indicated capital allocation policy.”
Analysts Edward Prest and Adrian Kearsey at Panmure Liberum have a Buy note on the group’s shares, with an Objective of 200p.
Reflecting challenging conditions coupled with higher freight costs, they go for £234m (£209m) sales to end December with pre-tax profits of £24.0m (£21.2m), lifting earnings up to 12.1p (11.1p) while maintaining its dividend at 4.8p per share.
For next year their estimates suggest that sales could rise again to £252m, with £28.6m profits, 14.5p earnings and a 5.4p dividend.
Looking forward into 2026 the brokers have £267m sales, £32.7m profits,16.6p earnings and a healthier 6.2p dividend per share.
The group’s shares are fairly steady at 167p, valuing the equity at £269m.
On the basis of these estimates, I take the view that the shares remain a medium-term Hold, for buying on any big dips in price but certainly not for chasing.
(Profile 15.06.20 @ 96.1p set a Target Price of 125p*)
Marlowe (LON:MARL) – Self-Funded M&A Action Could Create Bigger Value
The results for the year to end March by this group, reported revenues up to £403.4m (£381.6m), with adjusted pre-tax profits down at £20.5m (£28.9m), reducing earnings to 15.9p (24.1p) per share.
The last year or so has seen a significant change in this group’s framework, subsequent to it selling off in June its Governance, Risk & Compliance assets to Inflexion Private Equity for £430m cash.
Going forward that leaves the group focussed on the highly attractive and regulated business-critical service markets across Testing, Inspection & Certification and Occupational Health.
Largest shareholder Michael Ashcroft, the Interim Chairman, stated that:
“The Group is now focussed on the highly attractive and regulated business-critical service markets following the significant divestment of a number of GRC software and service assets post year end.
The enterprise value of £430 million achieved on exit was a good outcome for Marlowe and its shareholders and significantly exceeded Marlowe’s market capitalisation prior to announcement.
Marlowe now consists of two market-leading divisions in TIC and Occupational Health.
Within TIC we implement testing and inspection regimes to certify business premises and ensure critical systems are safe and compliant across fire safety & security and water & air hygiene.
Our Occupational Health business assures regulatory compliance across our customers’ employees, implementing health surveillance, absence management and employee wellbeing initiatives.
Looking forward the Group has a clear focus on driving organic growth, delivering margin improvement and converting this into strong cash flow performance.
This focus and our strong balance sheet supports the Board’s confidence in the business going forward.”
Analyst Peter Renton at Cavendish Capital Markets has maintained his 775p Price Objective on the group’s shares.
Like me, he appreciates companies with high recurring revenues, Marlowe is running at around 80% ARR, and with demand underpinned by regulation and insurance requirements.
His estimates for this year to end March 2025 are for £416m revenues, £29.0m adjusted pre-tax profits, with 23.8p of earnings per share.
For the 2026 year his figures suggest £433m sales, £36.5m profits, and 32.4p per share earnings.
The shares at 448p may look too highly rated, but I can foresee some stronger action in the near-term and I would not advocate any selling just yet.
(Profile 30.01.20 @ 313p set a Target Price of 395p*)
(Asterisks * denote That Target Prices have been achieved since Profile publication)