Shares in H&T (HAT:AIM) rallied 6.6% to 291p as the pawnbroker delivered better than expected first half profits as its pawnbroking and retail performance more than offset a slightly worse than anticipated showing from gold purchasing and pawnbroking scrap.
The resilient operator also reported cash balances of £32.5 million, underpinning a larger than expected interim dividend of 4p (H1 2020: 2.5p). Management plans to increase the shareholder reward back to pre-pandemic levels as soon as possible.
PAWNBROKING RECOVERY
H&T reported pre-tax profits of £4.7 million for the half to 30 June, down 6% on the prior year’s £5 million haul, yet representing a robust performance considering Covid-related trading restrictions from January to April and reduced high street footfall throughout the half.
Encouragingly, pawnbroking lending volumes are now back at 90% of pre-pandemic levels and this is starting to drive growth in the pledge book which was up 4% to £50.2 million in the half and had increased further to £52.2 million by the end of July.
H&T’s retail business surprised to the upside despite store sales being disrupted by Covid-related closures, and the company insisted demand remains strong.
Gold purchasing and pawnbroking scrap were up against a tough comparative that benefited from a sharp increase in the gold price, though these activities were also adversely impacted by auction houses being closed for most of the half and with fewer customers looking to sell items, in part due to having amassed cash during lockdown.
CEO Chris Gillespie said his charge has ‘traded strongly since April’s progressive relaxation of the pandemic restrictions. Pledge lending is steadily returning to normal levels and demand for our value for money, high quality jewelry and watches has been particularly strong.’
Gillespie added that the positive trading momentum seen in the second quarter ‘has continued in the third quarter with further growth in the pledge book to £52.2 million as at 31 July 2021. We enter the second half of the financial year with growing confidence.’
THE SHORE CAPITAL VIEW
A Financial Conduct Authority (FCA) review of the credit worthiness, affordability assessments and lending process within H&T’s High Cost Short Term loan (HCST) business, ongoing since 2014, is taking longer than expected.
While this creates uncertainty, Shore Capital believes that ‘any potential redress costs and penalties that may be incurred will be manageable within the context of the group’s financial resources and should not materially affect future growth prospects’.
The broker believes H&T is ‘well positioned to benefit from a post-pandemic pick-up in demand while also noting that quite a lot of capacity has recently exited the non-standard lending industry. Consequently, we are optimistic on the outlook for the remainder of the year and beyond.’
Shore Capital stressed H&T’s 2021 earnings are ‘likely to represent a cyclical low point’ and sees ‘strong recovery potential from here. Perhaps of greater note, the shares are trading at a slight discount to their tangible net asset value of £114.4 million as reported at 30 June 2021, despite this being backed by conservatively-valued assets, in our view.’
