With Britain’s dole queues lengthening and welfare benefits being cut, how will the unemployed make ends meet? One answer is to take a stroll down the nearest high-street and sell unwanted possessions.
No wonder H&T, Britain’s largest chain of pawnbroking shops with 128 outlets, is enjoying its own mini gold-rush. With bank lending drying up, people in dire need of money are beating a path to its doors in an attempt to get the credit they can’t obtain anywhere else.
Indeed, H&T has turned a cottage industry into an industrial enterprise. It is expanding fast too, and has taken advantage of the increasing availability of retail space on the country’s high streets to grow its estate.
What’s more, to capitalise on the current interest in the yellow metal, the company has opened 54 temporary kiosks in shopping malls where punters can exchange their gold for cash. So far this has proved a real hit, thanks to the soaring price of bullion and a wave of media coverage.
As far as the numbers go, the City is forecasting 2010 turnover and underlying earnings per share (EPS) of £88.2m and 33.4p respectively, along with an 8.4p dividend (that’s a 3.3% yield).
This represents good value for a group that should continue to prosper even if there is a double-dip recession. However, there are risks.
First, there is the firm’s net debt of £42m – a round of fund-raising is always possible in the event of the gold fad melting away.
Second, due to some ‘sharp’ practices being adopted by the loan sharks in the industry, a future government crackdown can’t be ruled out. That said, the Office of Fair Trading has just concluded that in Britain the “market is reasonably competitive, with low complaint levels”. So I would value the group on ten times 2010 earnings. That generates an intrinsic value of more than 330p per share. Interim results are due out on 24 August.
Recommendation: speculative BUY at 252p (market capitalisation £89m)