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 135.5p 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
Tomorrow (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.
Tomorrow the boss of Ramsdens, Peter Kenyon, will actually be declaring the company’s results for the extended eighteen months from 1 April 2019 to the end of September this year.
Suffered during the virus
During that span it had to suffer massive store closure and an effective suspension of a lot of its trade – even so we could well see Kenyon reporting a pre-tax profit of over £9m for that 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, 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.
Price of gold increasing 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 that 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 have seen 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.
Tomorrow's results statement should be very interesting to read.
The group’s shares are now 135.5p and offer some big upside, I see them at least 175p in due course, if not even higher.
(Profile 07.11.19 @ 204p set a Target Price of 250p*)
(Covid-19 Market Recovery Portfolio 24.03.20 @ 85p)