Pawnbroker, jewellery retailer and currency exchange company Ramsdens (RFX:AIM) is off to great start since floating in February. The IPO (initial public offering) offer price was 86p and the stock now stands at 129.5p, enjoying a 3.2% rise today after releasing a stellar set of year end results to 31 March 2017.
Headquartered in Middlesbrough, the company is a long established business with roots dating back to the 1970s.
Beating upgrades
Results show increases in all key metrics with stand outs being a 73% jump in profit before tax to £4m and a 11.8% increase in diluted earnings per share to 7.6p. It has exceeded market expectations by some way.
As Ramsdens had already been upgraded following its trading update in April, to have exceeded upgraded forecasts is no mean feat. Its profit before tax beat broker Liberum’s forecast by 5% and its earnings per share was 2% ahead of its estimate.
The company's three main divisions all performed well. Speaking to chief executive Peter Kenyon, the business model seems quite straight forward for its pawnbroker division. ‘The secret is to lend half of what you can sell it for, then if the loans aren’t repaid the item can be sold. It works,’ says Kenyon.
Regarding precious metals, Kenyon says that his company and H&T (HAT) have hardened battle scars from the last ‘gold debacle’. He adds that a lot of people over lent and got caught out by the fall in the gold price.
The move into high street currency exchange in 2006 diversified the company and Bates is basing his earnings per share upgrades for 2018 (12.6p) and 2019 (13.6p) on this business and pawnbroking.
Shares in Ramsdens, which interestingly sponsors Middlesbrough Football Club shirts (the team was relegated from the Premier League last season), are trading on a price to earnings (PE) ratio of 10.3-times.
Possible headwinds include gold price volatility and currency fluctuations but the company has managed itself well during previous spells of volatility.
Proposing a final dividend of 1.3p per share for last year belies the underlying income scope. Justin Bates, an analyst at Liberum, says the company has good dividend potential, forecasting a rise to 6.5p for this year.
As Kenyon predicted back in April, FX is the largest profit provider but this is a diversified business which may weather all storms. Bates has upgraded Ramsdens' target share price to 162p. That implies 25% value upside and would still leave the stock looking inexpensive on a PE of 12.9 and yielding 4%.
