H&T Group PLC – Revenues and profits reduced in this unprecedented environment.

H&T Group PLC is a FTSE AIM All-Share listed Company, which provides a range of accessible financial products to the customers who have limited access from the traditional financing institutions.

On 3 September 2020, the shares were marked as ex-dividend.

Investment Rationale – Avoid at GBX 251.20

• From a trading multiple perspective, EV/EBITDA multiple is overvalued as compared to the Banking industry.
• From a technical perspective, 20-day SMA (258.8), reflecting a significant downward trend.
• Over the past 1-year, HAT’s stock price has fallen nearly 36.93%, whereas the benchmark index (FTSE AIM All-Share) has gained around 9.91%.
• Diluted EPS fell to 10.2 pence in H1 FY20 from 15.0 pence in H1 FY19.
• As of 30 June 2020, personal loan book reduced significantly by 43.8% to £10.0 million (30 June 2019: £17.8 million).

Risk Assessment

• Personal lending customers were materially impacted by the Covid-19 pandemic, which could lead to a credit loss.
• Another round of lockdown with the resurgence of Covid-19 cases can close the stores again and lead to further financial losses.
• Reduced product demand with changing consumer behaviour can impact the Company’s growth trajectory.
• An economic downturn and higher unemployment might impact loan repayment and redemption profiles of the customers.

Recent News

1 July 2020: Chris Gillespie was appointed as an executive director. He joined the board from September 2020 onwards. On 25 September 2020, he purchased 60,000 equity shares of the Company of 5 pence each while the CFO bought 10,00 equity shares.

Interim Results for the six months ended 30 June 2020 (as on 11 August 2020)

(Source: Company Website)

• During H1 FY20, profit before tax plunged 26% year-on-year while the operating profit slumped by 32.9%.
• Net debt reduced to nil while the net assets went up to £126.9 million (30 June 2019: £107.6 million).
• The Company froze interest on pawnbroking loans since stores were closed during the lockdown.
• The interim dividend announced for H1 FY20 stood at 2.5 pence (H1 FY19 interim: 4.7 pence).
• The investment in digital and online capabilities will decide the business performance in the future.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

During the H1 FY20, material reductions were seen in top-line and bottom-line items of the income statement. Although the business has shown recovery since the stores reopened, albeit the macro-economic uncertainties will keep the customer sentiment dented in the short-term and re-establishing the business to pre-closure level would take some time. Moreover, the impact of impairments on loan receivables is still unclear. Therefore, it is prudent to avoid investment in this stock, as of now. Stock 52 week High and Low were GBX 398.00 and GBX 227.00, respectively.

Given the heightened level of uncertainties, we recommend a “Avoid” stance on H&T Group PLC  at the current price of GBX 251.20 (as on 21 October 2020, before the market close at 10.25 AM GMT+1), while we look forward to reviewing the support from upcoming catalysts to reinvest.  

*All forecasted figures and Industry information have been taken from Refinitiv, Thomson Reuters.

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