H&T Group Plc - Defensive / Growth investment

Written by Ed Stacey

H&T Group PLC (LON:HAT) is the UK market leader in pawnbroking, with a chain of 182 high street stores across the county, offering consumers secured credit against items such as gold, watches, and jewellery. In addition to the core pawnbroking activity and related jewellery and watch retailing, H&T Group offers a range of other financial services, detailed in this report.

A key element of H&T’s business model is the retention of high-quality staff, to deliver good customer service in its branches. This service culture has enabled H&T to establish market leadership in the UK, with strong customer loyalty in the localities it serves. The company estimates that 90% of pawnbroking revenue comes from repeat customers.

The business has attractive defensive qualities as an investment, given the liquid nature of the collateral, and conservative lending policies. Indeed, H&T delivered earnings growth right through the 2007-2009 financial crisis.

H&T Group has delivered an earnings per share (EPS) compound annual growth rate (CAGR) of 17.9% over the last five years (to 2018e) and a dividend (DPS) CAGR of 20.3%. In the last financial year, the company delivered a pre-tax return on equity (RoE) of 13.1% (pre-tax profit / net asset value) and has demonstrated the ability to keep reinvesting to grow the loan book and the business while maintaining a dividend pay-out (DPS/EPS) of more than 30 % every year for the last five years.

For a company with strong defensive attributes and good growth prospects, we argue that the current P/E valuation of only 10.9x (2018e) represents an interesting potential entry point.


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