Pawnbroker H&T (HAT:314p) has effectively issued five earnings upgrades since I included the shares, at 289p, in my market-beating 2017 Bargain Shares portfolio. Interim results for the six months to end-June 2018 have not altered my positive view.
The company’s lower-interest-rate personal loan product (APR 49.9 per cent) helped drive up H&T’s personal loan book by 19 per cent to £17.9m in the first six months of this year, underpinned by demand from customers looking to rebuild their credit score. The division now accounts for 10 per cent of trading profit, albeit a seven percentage point contraction to 37.5 per cent on the annualised risk-adjusted margin earned (revenue less impairments) from this particular lending activity reflects a shift in the loan book towards lower-rate products. That’s no bad thing as over half of H&T’s personal lending is now out of the high-cost short-term credit category.
| 2017 Bargain shares portfolio performance | |||||
| Company name | TIDM | Opening offer price on 03.02.17 (p) | Latest bid price on 03.09.18 (p) | Dividends | Total return (%) |
| Kape Technologies | CROS | 47.9 | 130 | 0 | 171.4 |
| BATM Advanced Communications | BVC | 19.25 | 40.4 | 0 | 109.9 |
| Chariot Oil & Gas (see note one) | CHAR | 8.29 | 9.7 | 0 | 74.6 |
| Cenkos Securities (see note two) | CNKS | 88.425 | 106 | 9.5 | 30.6 |
| Manchester & London Investment Trust (see note three) | MNL | 291.65 | 377 | 3.0 | 28.4 |
| Bowleven (see note four) | BLVN | 28.9 | 33 | 0 | 15.5 |
| H&T | HAT | 289.75 | 306 | 15.8 | 11.1 |
| Avingtrans | AVG | 200 | 210 | 4.7 | 7.4 |
| Management Consulting Group (see note five) | MMC | 6.183 | 6 | 0 | -3.0 |
| Tiso Blackstar Group (see note six) | TBG | 55 | 17.4 | 0.54 | -67.4 |
| Average | 37.8 | ||||
| Deutsche Bank FTSE All-share tracker (XASX) | 409 | 421.9 | 32.82 | 11.2 | |
| Notes: | |||||
| 1. Simon Thompson advised selling two-thirds of the Chariot Oil & Gas holding at 17.5p on 3 April 2017 ('Bargain shares on a tear', 3 April 2017). Return reflects the profit booked on this sale. Simon subsequently advised using some of the proceeds from the share sale to participate in the one-for-8 open offer at 13p a share in March 2018 which is taken into account in the total return ('On the earnings beat', 5 Mar 2018). | |||||
| 2. Simon Thompson advised selling the Cenkos Securities holding at 106p on 3 April 2017 ('A profitable earnings beat', 3 Apr 2017). | |||||
| 3. Manchester and London Investment Trust paid total dividends of 3p a share on 2 May 2017. Simon Thompson then advised selling half of the holding at 366.25p on 26 June 2017 ('Top slicing and running profits', 26 June 2017), and selling the remaining half at 377p ('Bargain shares second chance', 17 August 2017). | |||||
| 4. Simon Thompson advised banking profits on half your holdings in Bowleven shares at 33.75p, and running the balance ahead of drilling news at the Etinde prospect in Cameroon in the second quarter of 2018 (‘Hitting pay dirt', 9 Apr 2018). The total return reflects this share sale. | |||||
| 5. Simon Thompson advised to sell Management Consulting's shares at 6p in February 2018 (‘How the 2017 Bargain share portfolio fared’, 2 February 2018). | |||||
| 6. Tiso Blackstar has transferred its UK listing to the Johanesburg Stock Exchamnge. Price quoted is sterling equivalent bid price at current exchange rates. | |||||
| Source: London Stock Exchange share prices. | |||||
Importantly, H&T’s core pawnbroking business continues to perform well, increasing its pledge book by 9 per cent to £48m in the six-month period, reflecting higher footfall to its stores, new customers being attracted online and by introducers, and growth in the high-value watch segment. This operation accounts for half of trading profit and remains hugely profitable. High redemption rates of 84 per cent and a lower impairment charge helped to contribute to a slightly higher annualised risk-adjusted margin (revenue less impairments) of 67.7 per cent.
The move to IFRS9 reporting complicates matters, but the company looks well on course to deliver Numis Securities' expectations, which point to 12 per cent growth in full-year pre-tax profits to £13.4m and mid-teens growth in EPS to just shy of 30p. Shareholders are reaping the rewards after the board increased the interim payout per share from 4.3p to 4.4p, covered three times over by EPS of 13.5p, suggesting a 5 per cent higher full-year payout of 11p is on the cards.
Priced on 10.5 times earnings estimates, offering a prospective dividend yield of 3.5 per cent and rated on a modest price-to-book value of 1.2 times, the pullback in H&T’s share price, from 353p when I covered the annual results in the spring (‘Bargain Shares: Beating the market Part II’, 14 March 2018), is overdone. Buy.
■ End of offer. Until 3 September, Simon Thompson's new book Successful Stock Picking Strategies and his second book Stock Picking for Profit can be purchased for £16.95 each with free postage and packaging (normally £2.95 per book) at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. Details of the content of both books can be viewed on www.ypdbooks.com.
