The contribution from H&T’s (HAT:338p) acquisition of 65 stores trading as The Money Shop (TMS) last summer, and a £8m pledge book purchased from Albemarle & Bond in the autumn, helped the pawnbroking and financial services group to report a 45 per cent surge in annual pre-tax profit to £20.1m on 15 per cent higher revenue of £101m. However, pre-tax profits still came in 6 per cent ahead of Numis’s forecasts and that’s after the house broker pushed through 12 per cent upgrade in October.
H&T’s pledge book rose from £52m to £72.2m last year, buoyed by an eye-catching 15 per cent organic growth. Clearly, the buoyant gold price environment is beneficial to the pawnbroking business, which makes up 39 per cent of H&T’s gross profits of £101m. Indeed, finance director Richard Withers notes that the TMS pawnbroking business “is exceeding our expectations”. It’s also beneficial to gold scrapping and gold purchasing activities, which between them increased gross profit by more than half to £8.2m. Mr Withers says that every 10 per cent move in the gold price adds £2m to the bottom line from these two activities. That augurs well given that the gold price has surged by a further 11 per cent to £1,272 per oz since the start of 2020.
| 2017 Bargain Shares Portfolio performance | |||||
| Company name | TIDM | Opening offer price on 3.02.17 (p) | Bid price on 10.03.20 (p) or exit price (see notes) | Dividends | Total return (%) |
| Kape Technologies (formerly Crossrider) | KAPE | 47.9 | 143 | 3.55 | 205.9 |
| BATM Advanced Communications (see note seven) | BVC | 19.25 | 44.3 | 0 | 147.1 |
| Avingtrans | AVG | 200 | 257 | 10.8 | 33.9 |
| 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 |
| H&T | HAT | 289.75 | 331 | 27.1 | 23.6 |
| Chariot Oil & Gas (see note one) | CHAR | 8.29 | 1.8 | 0 | 3.9 |
| Management Consulting Group (see note five) | MMC | 6.183 | 6 | 0 | -3.0 |
| Bowleven (see note four) | BLVN | 28.9 | 5.5 | 15 | -6.1 |
| Tiso Blackstar Group (see note six) | TBG | 55 | 15.6 | 0.54 | -70.7 |
| Average | 39.4 | ||||
| FTSE All-Share Total Return | 6485 | 6505 | 0.3 | ||
| FTSE Aim All-Share Total Return | 977 | 936 | -4.2 | ||
| 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-eight 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). Simon turned buyer of the shares at 4p on 17 April 2019 when he suggested using the profit banked to reinvest in the shares ('Chariot's North African adventure', 17 Apr 2019). | |||||
| 2. Simon Thompson advised selling the Cenkos Securities holding at 106p on 3 April 2017 and the 106p price quoted in the above table is the exit price on the holding ('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 Jun 2017), and selling the remaining half at 377p ('Bargain shares second chance', 17 Aug 2017). The 377p price quoted in the table is the final exit price. | |||||
| 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 company subsequently paid out a special dividend of 15p a share on 8 February 2019 and Simon then advised selling the balance of the holding at 5.5p ('Taking stock and profits', 9 Dec 2019). | |||||
| 5. Simon Thompson advised to sell Management Consulting's shares at 6p in February 2018 (‘How the 2017 Bargain share portfolio fared’, 2 Feb 2018). The price quoted in the table is the 6p exit price. | |||||
| 6. Tiso Blackstar has transferred its UK listing to the Johannesburg Stock Exchange. Price quoted is sterling equivalent bid price at current exchange rates. | |||||
| 6. Simon Thompson advised banking profits on half your holdings in BATM shares at 49.9p, and running the balance for free ('Bargain Shares: Exploiting pricing anomalies and top-slicing', 3 Dec 2018). Simon then advised reinvesting the profits back into the shares at 43.5p ('BATM armed for a re-rating', 11 Jul 2019). Total return takes into account these trades. | |||||
| Source: London Stock Exchange share prices. | |||||
It’s worth flagging up that 17 per cent of H&T’s personal loan book of £16.6m consists of near prime loans and only 10 per cent is high-cost short-term credit (HCSTC) unsecured loans, all of which will mature by the year-end. H&T continues to work closely with the Financial Conduct Authority (FCA) following a regulatory review of certain aspects and files of the HCSTC business. Even after taking into account the cost of the FCA review, Numis expects pre-tax profit to rise by a fifth to £24m to boost earnings per share by 11 per cent to 48.8p and support a payout per share of 12p, up from 11.7p in 2019.
H&T has paid out dividends of 27p a share since I included the shares, at 289p, in my 2017 Bargain Shares Portfolio. On a forward price/earnings ratio of 6.8, trading in line with book value and offering a prospective dividend yield of 3.6 per cent, the shares remain a buy.
■ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. The books are being sold through no other source and are priced at £16.95 each plus postage and packaging of £3.25 [UK].
Special offer: Both books can be purchased for the special price of £25 plus discounted postage and packaging of only £3.95. The books include case studies of Simon Thompson’s market beating Bargain Share Portfolio companies outlining the investment characteristics that made them successful investments. Simon also highlights many other investment approaches and stock screens he uses to identify small-cap companies with investment potential, too. Details of the content of both books can be viewed on www.ypdbooks.com.
Simon Thompson was named 2019 Small Cap Journalist of the year at the 2019 Small Cap Awards.
