H&T Group (LON:HAT) – Broker’s analyst visits a recently acquired business that has the largest pawnbroking store in the UK
In February this year, for £11.3m cash, HAT acquired the pawnbroking business of Maxcroft Securities.
Earlier this week analyst Gary Greenwood, from Shore Capital Markets, visited the Maxcroft business in Ilford, which is said to be the largest pawnbroking store in the UK, and some three times the size of the HAT group’s next largest store.
From reading his report I cannot define whether he came away impressed about what he saw and learned on the visit.
His conclusion stated that:
“While there is not a huge amount to see, the visit to Maxcroft was nonetheless useful in providing us with additional colour and context to what is now a flagship store for the Group.
It is clear to us that it has been a very successful operation under the previous ownership and that there is much that H&T can learn and apply elsewhere.
To date, H&T has been focused on ensuring a smooth transition in order to ensure Maxcroft is not disrupted, but we expect the focus will now shift to driving growth.”
In late August, after the company declared its Interim Results to end-June, Greenwood commented that:
“H&T is the UK’s largest pawnbroker and a leading retailer of new and used jewellery.
It is currently seeing strong demand for its pawnbroking services due to the withdrawal of competition following regulatory change, but higher than expected redemptions have impacted the revenue yield.
Retail is also benefitting from the growing fashion for recycled jewellery, while FX is seeing market share gains as increased focus has been placed on growing this business line.
Further growth potential is underpinned by ongoing geographical expansion through new store openings.
Together, we expect these factors to support continued steady growth in both earnings and dividends over the medium-term.”
In yesterday’s note on the group the analyst considered that his estimates for the current year, to end-December, are that adjusted pre-tax profits will increase from £26.4m to £29.5m, generating higher earnings at 51.0p (48.7p) and enabling a 1p addition to the dividend of 18.0p (17.0p) per share.
For the coming year Greenwood estimates £31.6m profits, 54.6p earnings and 19.0p per share dividend.
The 2026 trading year could see £33.5m profits, 57.8p earnings and a 20.0p dividend.
In late August Canaccord Genuity Capital Markets initiated its views on the group, having issued a 59-page report on the group, putting out a Price Objective of 531p on its shares.
Analysts Portia Patel and Justin Bates consider the group to be a long-term growth story – and having followed the company for decades I totally agree with them.
The analysts reckon that the group offers multiple opportunities for growth, while noting that:
“H&T is the UK’s largest pawnbroker and sixth-largest retailer of high-quality pre-owned and new jewellery and watches.
Pawnbroking is small-sum, specialist, secured consumer lending, serving individuals typically excluded by mainstream financial institutions.
We believe H&T is well-positioned to build on the strong profit growth delivered post-pandemic and the longer-term track record of growth since its IPO in 2006.”
They stated that the key drivers for the group are that traditional sources of credit are drying up, that the pawnbroking market is fragmented but with HAT having a 30% share, that gradually the group’s stores are maturing and indicate scope for further growth, while its retail and its FX sides both offer growth potential.
My View
This time last year they traded up to 502p, however, I take the view that H&T Group shares are today trading at too low a valuation, with its shares now just 361p, capitalising the company at only £156m.
Accordingly, I will now set a new Target Price for the shares to reach 450p, within the next year, if not a lot sooner.
(Profile 06.07.22 @ 332.5p set a Target Price of 400p*)
(Profile 30.01.23 @ 429p set a Target Price of 500p*)
(Profile 10.10.24 @ 361p set a Target Price of 450p)
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