Ramsdens reaps broking rewards

Ramsdens (RFX) showed considerable promise in the first half as a combination of pressure on consumer incomes and a growing retail footprint increased demand for pawnbroking services, which tends to peak during times of costs of living pressures. So, it is little surprise that the shares have reached a 12-month high. Management confirmed its confidence in the outlook by hiking the half-year dividend by 22 per cent.

The company’s operations comprise jewellery retail, pawnbroking and foreign currency exchange. Of these key segments, jewellery retail enjoyed a surprising boom with revenue increasing by 32 per cent to £17.3mn, with the overall store estate increasing by six stores to 158, with additions during the period in Bootle, Basildon, Bradford, Croydon, Maidstone and Warrington. The average shop generates roughly £0.5mn in revenue, with the new openings performing better than expected.  

The pawnbroking segment saw the second fastest growth with the book increasing by 29 per cent to £9.7mn. The increase in pledges against watches and jewellery meant that gross profits grew faster still and were up by 31 per cent to £4.82mn. The increase in demand also meant higher levels of delayed payments and defaults – these were £0.74mn for the half, a rise of 28 per cent.

Broker Liberum upgraded its forecasts for the fifth time in a year and the shares now trade on a forward price/earnings ratio of 10 times earnings for 2023, with the added bonuses of more transparent revenue streams that its closest rivals. We tend to agree and we reiterate Simon Thompson's view on the stock. Buy.

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NB: The stock has been extensively covered by Simon Thompson in his Bargain Shares.