A cost-of-living crisis, persistent inflation and higher interest rates are playing to the strengths of the UK’s biggest pawnbroker H&T (HAT:AIM) and business recovery practice Begbies Traynor (BEG:AIM), two companies which delivered positive updates today.

Both companies should do well if the UK economy does fall into recession and interest rates continue to rise. With UK wage growth remaining at a record high of 7.3% in the three months to May, the market is now pricing in a 70% chance the Bank of England will push through another 50 basis point (0.5%) interest rate hike in August.

This would heap further pressure on cash-strapped consumers and indebted businesses and provide an additional tailwind for the two companies.

H&T CONTINUES TO SHINE

Pawnbroker H&T, which also sells high quality new and pre-owned jewellery and watches, is benefiting as more and more cash-strapped people pledge assets as collateral for loans.

Shares in H&T ticked up 0.7% to 425p today after it said strong trading momentum continued in the six months to 30 June 2023, underpinned by the core pawnbroking business.

H&T’s pledge book closed the period at £113 million, representing 33% growth year-on-year, while retail sales rose 10% as demand or H&T’s new and pre-owned jewellery and watches continued to rise.

Chief executive Chris Gillespie said he was ‘very pleased with the progress we have made in the first half of 2023 in an environment of rising interest rates and persistent inflation’ and is ‘particularly encouraged by the growing momentum with which we enter the busy second half of the year.’

WHY BEGBIES IS WELL-POSITIONED

Like H&T, business recovery-to-financial advisory firm Begbies Traynor thrives when economic conditions are gloomy and has seen increased work for insolvencies, which reflects how businesses can crumble under the pressure of higher rates.

Many companies have reached a tipping point where they cannot generate enough cash to service borrowings and so they have no choice but to fold.

Begbies Traynor’s results for the year ended 30 April 2023 came in ahead of original market expectations, revealing an 11% rise in revenue to the best part of £122 million and a 16% uptick in adjusted pre-tax profit to £20.7 million.

In a show of confidence, Begbies Traynor raised the total dividend by 9% to 3.8p, the sixth year of dividend growth on the spin. Management flagged a strong start to the new financial year, underpinned by rising insolvency volumes, though the shares cheapened 1.1% to 133p on profit-taking after a recent rally.

Ric Traynor, executive chairman, insisted his charge has ‘a proven growth strategy which, over the five year period between 2019 and 2023, has doubled revenue and tripled adjusted profit before tax, from a combination of organic growth and acquisitions. This growth has been delivered across insolvency and our full range of advisory and transactional services.’

Traynor added: ‘The increased scale of the group with complementary professional services and an enhanced client base provides a strong platform for us to continue delivering growth. With 80% of income generated from counter-cyclical and defensive activities, we are well-positioned in the current challenging economic environment.’

Broker Shore Capital concurred, remaining ‘confident that if midmarket administration volumes, which remain below historical levels, continue to rise as is likely, there is scope for more meaningful upgrades.’

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