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Ramsdens' profit-taking offers buying opportunity

Shares in this fast-growing financial services company have drifted 20 per cent from their record high and now trade on a bargain basement cash-adjusted PE ratio of seven
August 14, 2018

There has been a bout of profit-taking at Middlesbrough-based Ramsdens (RFX:158p), a diversified financial services company, after three directors sold 3 per cent of the share capital. However, they still have decent holdings including chief executive Peter Kenyon who retains a 3.5 per cent stake.

To put the valuation into perspective, strip out Ramsdens’ net funds of 41p a share and it is being valued on seven times historic earnings per share. The final payout of 4.4p-a-share has yet to go ex-dividend, too. Add that to a 7.1p a share likely payout for the current financial year and you can expect a 7.3 per cent return in the next 13 months from dividends alone.

Sterling weakness is worth considering. It has been on the slide since April. That’s good news for Ramsdens’ highly competitive foreign currency arm, which accounts for 40 per cent of gross profit. True, a higher level of UK staycations could dampen demand, but given the customer base’s northern bias, and the fact that the heatwave didn’t really start until mid-June, so well after when most holiday bookings are made, I don’t think this is a major factor. Also, the 4 per cent drop in the sterling gold price since mid-June is hardly going to dampen demand for pawnbroking services, a quarter of gross profits.

So, having suggested buying at 132p ('A jewel in the north', 12 Jun 2017) and remained positive at the annual results ('Ramsdens upgrades yet again', 11 Jun 2018), I see a repeat buying opportunity in the oversold shares. Buy.

 

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