Ramsdens Holdings PLC (LON: RFX) – Diversified financial services provider with expansion plans

Ramsdens Holdings PLC (LON: RFX) is a FTSE AIM All-Share index listed Company, which is a growing and diversified financial services provider. It operates in four core business divisions - pawnbroking loans, foreign currency exchange, buying & selling of precious metals, and retailing of new and second-hand jewellery. The Company’s roots can be traced back to the 1970s, and it is headquartered in Middlesbrough. Presently, it operates more than 160 stores within the UK (comprising of 4 franchised stores). It is further supported by the growing online presence. In the last financial year, it served over 930,000 customers across diversified services. Moreover, it is fully authorised by the Financial Conduct Authority for credit broking and pawnbroking activities.


 (Source: Presentation, Company Website)

Key Fundamental Statistics



Industry Outlook Dynamics

As per Statista, the global jewellery market was valued at US$279.0 billion in 2018, and it is expected to reach around US$480.5 billion by 2025. However, consumer appetite in 2020 is dampened by the global recession. Notwithstanding, the industry is dynamic and fast-growing. Adjacently, the demand for foreign exchange is dependent upon the demand for travel abroad. Meanwhile, rising gold prices can boost the business of precious metals. As per the recent publication from Grand View Research, the market size for global precious metals (valued at US$182.1 billion in 2019) is expected to grow at a CAGR of 9.0%, in terms of revenue from 2019 to 2027.

Growth Prospects and Risk Assessment

RFX provides a wide range of products and services, both on the high street and online, to thousands of customers. Moreover, it enjoys the benefit of diversified income streams, which provides them resilience even in the fluctuating customer demand. It also has the ability to quickly generate cash from retail jewellery stock and foreign currency holding. During the 12 months to 31 March 2020, underlying profit before tax was up by 19%, while basic earnings per share reported a jump of 28% against FY19. Moreover, the Company opened 10 new stores during the year, which shall provide them enhanced reach to maximize on opportunities. Besides newly added stores, all stores are older than two years, which were profitable in the year to 31 March 2020. Furthermore, new and relocated stores have been performing ahead of expectations.


(Source: Presentation, Company Website)

However, there are certain risks and uncertainties to the growth prospects of the Company. Following the struggling jewellery retail with Brexit uncertainties, the Covid-19 restrictions have aggravated the level of challenges. Consequently, the prolonged closures of stores can lead to liquidity and credit risk. Moreover, the Company did not declare any interim dividend due to store closure and prolonged state of uncertainties. Furthermore, the demand for luxury items and travel abroad can significantly fall due to deteriorated consumer confidence amid volatile market conditions. Also, the fluctuating currency rates can impact the available liquidity in place.

 

(Source: Presentation, Company Website)

Segment Analysis

The image below depicts the strong growth across diversified business segments, which has complementary product offerings and growing revenue streams.


(Source: Presentation, Company Website)

Synopsis of Recent Developments

27 March 2020: RFX announced the change of the accounting reference date and financial year-end from 31 March to 30 September. Therefore, annual and interim reports will be published each year for the 12 months to 30 September and 6 months to 31 March, respectively.
 
25 March 2020: Following the government directives to contain the coronavirus, the Company announced the closure of stores. As of 18 March 2020, it had nearly £10 million undrawn revolving credit facility and £10 million of cash.
 
Key Shareholders

Financial Highlights (for the twelve months ended 31 March 2020)


(Source: Company Website)

On 27th May 2020, the Company provided the second interim results for the twelve months ended 31 March 2020, with a year of further growth and increased profitability. The Company delivered a robust performance that was ahead of the management’s initial anticipations with an increase of 27% in revenue to £59.5 million and 19% in underlying Profit Before Tax to £8 million. Foreign currency exchange income increased by 13%, jewellery retail revenue was up by 28%, and pawnbroking income surged by 19%. Given the situation with coronavirus and store closure, the Board is not declaring another interim dividend. Regarding the financial position, the Company has a substantial liquidity to manage near term Covid-19 pressures and strong balance sheet with net assets of £35 million, including net cash of £11.1 million. It has the benefit of a £10 million revolving credit facility (RCF), which is expiring in March 2023. The Company is currently not drawing on this facility.Looking forward, the Group said it expects to benefit from the customer demand across the diversified income streams, as well as highlighting the ability to rapidly generate cash from the foreign currency holdings and retail jewellery stock.

Operational Highlights

On a standalone basis for the 12 months ended 31 March 2020, the Company was profitable in all of the Group’s 126 established stores. Over the last two years, RFX has opened the new stores. In 2020, the three stores (Worksop, Peterlee and Ashington) were relocated to have a greater focus on retail jewellery.Further, tenstores have been identified for relocation. It has also opened six new greenfield stores in the year 2020, including Doncaster, Barnsley, Guisborough, Chippenham, Harrogate and Teesside Airport.

Financial Ratios (for the twelve months ended 31 March 2020)

Reported profitability metrics for the financial year 2020 stood higher than the previous year (FY2019); higher revenue generated and better control over expenses as compared to the prior year. Ramsdens Holdings Plc has delivered a significant return for the shareholders’ as return on equity of 20.0% was higher as compared to the industry median of 15.7%. On the liquidity front, the Company’s current and liquidity ratio were higher than the previous year, reflecting sufficient current assets to pay the short-term obligations. On leverage front, the debt-equity ratio was 0.27x, which was lower as compared to the industry median of 1.17x, reflecting that the Company is less leveraged as compared to the industry.

Share Price Performance Analysis


Daily Chart as on 25 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 25 August 2020, at the time of writing (before the market close, at 12:15 PM GMT+1), Ramsdens Holdings Plc shares were trading at GBX 139.40, down by 3.86% against the previous day closing price. Stock 52 week High and Low were GBX 260.00 and GBX 68.00, respectively.

Bullish Technical Indicators

From the technical standpoint, the shares were trading flat as compared to the short-term support level of 20 and 100-day simple moving average price. Also, 14-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price. The Company’s stock has delivered a positive return of around 1.63% in the last one month.

Ramsdens Holdings Plc Vs FTSE AIM All-Share Index (5 Years)

 
(Source: Refinitiv, Thomson Reuters)

In the last five years, Ramsdens Holdings Plc share price has delivered 45.66% return as compared to the 5.99% return of FTSE AIM All-Share index, which shows that the stock has outperformed the index during the last five years.

Valuation Methodology

Price/Earnings Approach (NTM)



To compare Ramsdens Holdings Plc with peers, Price/Earnings multiple has been used. The peers are Premier Miton Group Plc (Price/NTM Earnings was 8.20x), H & T Group Plc (Price/NTM Earnings was 7.74x), Mattioli Woods Plc (Price/NTM Earnings was 17.95x), Appreciate Group Plc (Price/NTM Earnings was 13.53x) and Arrow Global Group Plc (Price/NTM Earnings was 8.49x). The Average of Price/NTM Earnings of the Company’s peers was 11.18x (approx.).

Business Outlook

RFX plans to open the stores in a phased manner. Meanwhile, it has sufficient liquidity with existing bank facilities and cash availability to deliver on long-term growth plans. In the “new normal” trading environment, the Company strategize to build the business on the following pillars:
 

1. Keep developing the online proposition.

2. Expanding the footprints in the UK.

3. Continue training and developing people.

4. Improving the performance of core assets.

5. Continue to appraise market opportunities.
 

(Source: Presentation, Company Website)

Ramsdens Holdings Plc witnessed a CAGR growth of ~18.69% in revenue over the period FY16 to FY20, while net income recorded a stellar CAGR growth of ~40.11% during the same period.

Considering the sustainable fundamental performance, benefits from diversified income streams, strong pipeline of additional stores, decent cash position, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Ramsdens Holdings at the current market price of GBX 139.40 (as on 25 August 2020, before the market close at 12:15 PM GMT+1) with lower double-digit upside potential based on 11.18x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).
 
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.