Interim results from diversified financial services group Ramsdens (RFX:204p) fully vindicate my decision to include the Aim-traded shares in my 2019 Bargain Shares Portfolio. The holding has produced a total return of 25 per cent since the portfolio launch on 1 February 2019, massively ahead of the 1.2 per cent total return on the FTSE Aim-All Share and contributing to the portfolio’s 29 per cent total return.
Buoyed by a 15 per cent hike to £8.4m in both revenue and gross profit earned by providing foreign currency exchange to over 500,000 customers, the rising gold price which benefited Ramsdens’ precious metals buying and selling service – the company booked £600,000 of one-off gross profits from scrapping gold to lift the segment’s gross profit contribution by more than half to £4.2m – and an 11 per cent increase to £2.5m in gross profits earned from jewellery sales, interim pre-tax profits surged by 23 per cent to £6.2m on revenue up 29 per cent to £32.5m.
The business has a first half weighting, so Liberum Capital’s full-year pre-tax profit estimate of £7.9m, up from £6.7m in the 2018-19 financial year, is well covered, thus de-risking earnings per share (EPS) forecasts of 20.6p, up from 17.4p in 2018-19, to support a 12 per cent forecast hike in the dividend per share to 8.1p.
| Simon Thompson's 2019 Bargain Shares portfolio performance | ||||||
| Company name | TIDM | Market value | Opening offer price 01.02.19 | Lastest bid price 03.12.19 | Dividends | Percentage change |
| TMT Investments (note one) | TMT | $163m | 250¢ | 580¢ | 20¢ | 140.0% |
| Futura Medical (note two) | FUM | £70m | 14.85p | 34p | 0p | 129.0% |
| Inland | INL | £164m | 57.75p | 79p | 0.85p | 38.3% |
| Ramsdens Holdings | RFX | £62m | 165p | 202p | 4.8p | 25.3% |
| Bloomsbury Publishing | BMY | £208m | 229p | 278p | 8.03p | 24.9% |
| Augmentum Fintech | AUGM | £124m | 102.4p | 106p | 0p | 3.5% |
| Mercia Technologies | MERC | £82m | 29.57p | 27.2p | 0p | -8.0% |
| Litigation Capital Management | LIT | £70m | 77.5p | 64.2p | 0.81p | -16.1% |
| Jersey Oil & Gas | JOG | £35m | 205p | 162p | 0p | -21.0% |
| Driver Group | DRV | £29m | 74p | 54p | 0.5p | -26.4% |
| Average | 29.0% | |||||
| FTSE All-Share Total Return index | 6,852 | 7,492 | 9.3% | |||
| FTSE AIM All-Share Total Return index | 1,023 | 1,036 | 1.2% | |||
| Note 1: Simon advised taking profits on TMT Investments at 580c a share on Monday, 9 September 2019 ('Takeovers, tender offers and taking profits', 9 September 2019). | ||||||
| Note 2: Simon advised taking profits on Futura Medical at 34p a share on Monday, 14 October 2019 ('Bargain Shares: golden opportunities', 14 October 2019). | ||||||
| Source: London Stock Exchange opening offer prices at 8am on 1 February 2019 and bid prices at 10am on 3 December 2019 | ||||||
Moreover, having acquired 22 former The Money Shop (TMS) stores in March and May this year to take the estate to 160 shops, full benefits of the acquisitions will be reaped next year when the integration is complete. Ramsdens mature shops generate a pre-tax profit of £48,000 each, or £15,000 more than TMS, highlighting the scope to improve profitability by making improvements to the product mix (including introducing jewellery sales) and operational savings. The directors expect the former TMS stores to contribute £600,000 of pre-tax profit in the 2020/21 financial year, adding weight to Liberum’s forecast that pre-tax profits will rise to £8.4m on revenue of £59.5m to deliver EPS of 21.3p and support a payout of 8.4p. Cash is building, too, up by a half to £12.3m (40p a share).
On this basis, Ramsdens’s shares are rated on a cash-adjusted forward price/earnings (PE) ratio of 8, offer a prospective dividend yield of 4 per cent, and trade on a price-to-book value of 1.8 times. That’s a low rating for a company set to deliver a current-year post tax return on equity of 19 per cent, and one that does not offer unsecured personal loans nor high-cost, short term credit loans as defined by the FCA. My target price is 250p. Buy.
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Simon Thompson has been named 2019 Small Cap Journalist of the year at the 2019 Small Cap Awards, a prestigious event celebrating the best and rewarding the finest professionals and companies that work within the AIM and NEX communities. It is attended by institutions, fund managers, brokers and advisors operating in the sub-£100m market cap quoted company sector.
