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Albemarle & Bond (ABM)
Debt Free Direct (DFD)
Sometimes it feels like we never stop talking about the tough times facing the poor old UK consumer.
We do it for two reasons. For a start, every day seems to bring new evidence that the man and woman on the street are feeling the pinch. And as the consumer accounts for about two-thirds of the UK’s economic growth, that’s bad news for the economy as a whole.
But secondly, and more importantly, if you know what’s going on before the rest of the crowd catch on, you can work out how to turn a hard time into a profit opportunity.
When the consumer starts to feel the squeeze, it’s the high street that tends to feel the pain first. But there’s one slightly grubby corner of the high street that positively revels in its customers’ hard times.
We’re talking about pawnbrokers. The pawn shop can seem like something out of a Dickens novel to the more fortunate amongst us, but they are still alive and thriving in the less salubrious streets of our cities.
The UK’s biggest pawnbroker is Aim-listed Albemarle & Bond (ABM), whose motto is ‘extraordinary financial services for ordinary people’. Its services might not be that extraordinary, but you certainly won’t find them in your local branch of Lloyds.
On Monday the group reported that pre-tax profits had jumped 12% to £3.3m in the six months to December 31st. Income from pawn-broking – mainly dealing in gold jewellery and diamonds – grew by 21%. Cheque-cashing income rose by 16% and ‘pay day advances’ – borrowing some money to tide you over until your wages hit the bank – rose by 7%.
Albemarle & Bond is one beneficiary of the fact that more and more people are finding it difficult to make their wage packet stretch to the end of the month. Combine that with the steadily rising gold price, and it’s no surprise that pawn-broking is currently in a sweet spot.
Another business that does well in hard times is debt counselling. Debt Free Direct (DFD), which helps the over-extended to choose between consolidating their loans and bankruptcy, said business over the Christmas period had beaten its hopes.
In the three months to January 2006, the group saw its turnover more than double on the previous year. ‘The very strong post-Christmas response to our advertising was again ahead of management expectations.’
The group’s main field of expertise is in individual voluntary arrangements. This is where a debtor makes a deal with a creditor to pay them off a specific proportion of the debt, in exchange for writing off the rest. It’s a major growth area – the number of IVAs taken out in the last three months of 2005 rose by nearly 120% on the same period in 2004.
As might be expected for such a fast-growing field, Debt Free Direct isn’t the only company dealing in IVAs. We’ll have more about the UK’s record debt problems and some of the companies set to benefit in this week’s issue of MoneyWeek.
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It looks like business will be good for the pawnbrokers and debt counsellors for some time yet. The Mail on Sunday reported that British Gas is set to raise its prices by 25%.
British Gas said that it hadn’t yet decided, but admitted prices are likely to rise, blaming the move on a 75% jump in wholesale gas prices in the past year. But the company isn’t necessarily benefiting from its customers’ discomfort – the group actually sold gas at a loss during December.
But even if higher gas prices aren’t good for the suppliers, the likes of Debt Free Direct and Albermarle & Bond can almost certainly expect more business as more British Gas customers are pushed over the edge by their rising heating bills.
Turning to the stock markets…
The FTSE 100 closed 13 points higher at 5,772. Health and beauty chain Boots was the main riser, up 4% to 675p on rumours that it is considering a bid approach from a consortium of private equity groups. On the downside, P&O fell 2% to 537.75p on concerns that Singapore’s PSA International may not trump DP World’s bid for the group.For a full market report, see: London market close.
Over in continental Europe, the Paris Cac 40 closed down 3 points at 4,934, while the German Dax rose 9 to close at 5,666.
Across the Atlantic, US markets were little changed, as investors remain jittery over tension in the Middle East. The Dow Jones rose 4 points to 10,798, while the S&P 500 rose 1 to 1,265. The tech-heavy Nasdaq slipped 3 to 2,258.
In Asian trading hours, oil was steady at around $64.90 a barrel in New York, while Brent crude was trading at around $62.60. Meanwhile, spot gold was trading at around $570 an ounce.
In Asian stock markets, the Nikkei 225 fell 26 points to 16,720. Digital camera giant Nikon fell 5% on concerns that it is too dependent on the weak yen supporting exports.
And in the UK, the British Retail Consortium reports that last month the high street experienced the worst January it has seen since the BRC survey began in 1995. Underlying sales rose by 0.2% year-on-year, compared to a 2.6% jump in December.
And our two recommended articles for today…
Why US interest rates will keep rising
– Wall Street seems to be hoping that the latest series of US interest rate hikes will soon end. But they are likely to be disappointed, argues Puru Saxena in the Daily Reckoning. The Federal Reserve must protect the dollar at all costs – even if that means plunging the US into recession. To find out the main factor putting the dollar under pressure, click here: Why US interest rates will keep rising
Why the FTSE 100 is set to hit 6,000 again
– Towards the beginning of last year, when the FTSE 100 was trading at around 4,800, MoneyWeek friend James Ferguson predicted that a reasonable target for the blue-chip index was 6,000. At the end of last year, he spelled out why. To find out what’s driving prices higher – and to learn which shares have the potential to make most gains, click here: Why the FTSE 100 is set to hit 6,000 again