H&T Group PLC
H&T Group Plc (HAT) is a pawnbroking company. The company is engaged in retailing jewellery, cheque cashing, gold purchasing, and offering personal loans. H&T Group also offers foreign exchange and buyback services. The company also offers gold purchasing, jewellery retail, cheque cashing, unsecured lending, buyback, foreign exchange currency, and money transfer services. It provides its products and services online and in-store.

Financial Highlights (FY 2018, £million)

(Source: Preliminary Results, Company Website)

The company’s gross profit increased by 12.9 per cent to £88.2 millionas compared with the financial year 2017 of £78.1 million, due to the growth in the core segment of retail, personal loans and pawnbroking. Total direct and administrative expenses rose by 12.5 per cent to £73.9 million from £65.7 million. Finance cost climbed by 33 per cent to £0.8 million against the £0.6 million in 2017, driven by the higher utilisation of the Group external loan facility during 2018 (because of the expansion in the pawnbroking and personal loan books). EBITDA rose by 11.3 per cent to £16.8 millionas compared to £15.1 million in 2017. Profit before tax in FY18 increased by 13.4 per cent or £1.6 million to £13.5 millionas compared with the previous year data. The company delivered profit after tax of £10.8 million. Diluted earnings per share stood at 29.2 pence, an increase of 12.7 per cent against the prior year data. The growth in profit for the year 2018 resulted in a surge in operating cash flows before movements in working capital of 12.7 per cent to £16.9 million. The Group had net assets of £107 million with year-end net debt of £13.6 million. The number of stores increased by 0.6 per cent to 182 stores as compared with the financial year 2017 of 181 stores. The net personal loans book has risen by 37.6 per cent to £20.5 million in FY18. Personal loan revenue, less impairment, has climbed by 79.5 per cent to £7.0 million. The pledge book was up by 9.5 per cent to £52.0 million reflecting the growth in higher value loans and increased customer numbers, lending on higher carat gold and watches.

Share Price Performance

Daily Chart as at May-23-19, after the market closed (Source: Thomson Reuters)

On 23^rd May 2019, HAT closed at GBX 314, down by 0.323 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 373.60/GBX 233.83. The company’s stock beta was 0.24, reflecting lower volatility as compared to the benchmark index.

Valuation Methodology

*All forecasted figures and Peer information have been taken from the Thomson Reuters.

Conclusion
The company's performance over the past three years demonstrates the continuing success of the strategy to access more customers and markets. Demand for the products remains strong, and with further improvements to the delivery capability underway, the group look forward to the future with confidence.

Demand for the services remains strong,and the development in the products and distribution enables to capture a larger share of the significant alternative credit market. The company’s thoughtful approach to growth reflects the intention to provide consumers with a service that maintains the highest standards of affordability and seeks to avoid any consumer detriment.

While the macroeconomic impact is uncertain, company believes that the range of products is well positioned to take advantage of any eventuality. The Board has regularly monitored the uncertainty surrounding Brexit during the year. The company continues to evaluate the potential impacts on staff, customers and suppliers, of various possible outcomes. The business has traded positively during the recent period of heightened uncertainty. 

Based on the strong growth prospects of the company and the valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 314 (as on May-23-19) with single-digit upside potential based on 11.84x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).

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