Middlesbrough-based Ramsdens (RFX:197p), a diversified and fast-growing financial services company, joined London’s junior market early last year, and has been posting a series of earnings beats ever since.
To put the upgrade cycle into perspective, when I suggested buying the shares, at 132p ('A jewel in the north', 12 Jun 2017), analyst Justin Bates at Liberum Capital predicted the company would deliver pre-tax profit of £4.8m and EPS of 12.6p in the financial year to the end of March 2018. He subsequently upgraded his estimates twice last autumn to £6.23m and 16.2p, respectively. In the event, Ramsdens increased pre-tax profit by 56 per cent to £6.31m and delivered EPS of 16.4p, up from £4m and 10.1p in the 2017 financial year.
The fivefold rise in the payout to 6.6p a share was better than I had expected and is supported by a bumper operating cash inflow of £5.5m, which boosted closing net funds by a third to £12.7m, a sum worth 41p a share. This provides the directors ample capital to finance a planned store roll-out programme of 10 new stores this year at an average cash cost of £220,000 each. A 30-month payback period for their investment highlights the high returns to be made. The cash pile also offers firepower for the directors to make small bolt-on acquisitions on the pawnbroking side of the business, with a view to cross-selling Ramsdens' full product range in the acquired businesses. It makes sense to do so in light of the success the company is enjoying.