logo

H&T Group PLC - Disciplined Growth in H1

Writen by Ed Stacey

ENCOURAGING GROWTH

H&T Group PLC (LON:HAT), the UK market leader in pawnbroking, released results on August 14 for the first half of 2018, showing sustained growth both in the core pawnbroking and other financial services.

The company delivered pre-tax profit growth of 10.9%, and earnings per share growth of 15.5%. The biggest drivers were the pawnbroking and personal loans segments, with positive growth (revenue and profit) also from the retail and other business segments.

FINANCIAL ANALYSIS – KEY OBSERVATIONS

Risk metrics remain favourable, with pawnbroking redemptions (customers reclaiming collateral) steady at 84%, and the personal loan business continuing to expand into lower risk loans with 54% of lending now outside of the high-cost-short-term segment. Balance sheet leverage remains low with net debt / EBITDA 0.97x (covenants 3.0x).

We note that these are the first results reported under IFRS 9 accounting. The company provided details of the IFRS 9 impact in a release on July 27. The table below includes the restated full-year (FY) 2017 baseline figures. Our forecasts apply the IFRS 9 standard, and represent a small increase compared to our previous 2018 revenue and profit forecasts (if restated for IFRS 9).

CONCLUSIONS AND VALUATION

In our initiation report (July 4, 2018: H&T Group, Defensive / Growth investment) we examined the resilient characteristics of the core pawnbroking business, along with the growth potential of the personal loans and retails businesses and the clicks-to-bricks digital platform across all business areas. The first-half results support our conclusions.

During the last 2 months, the share price has retraced back to its December 2017 level. This may be due to some weak macro news for the UK high street, and/or the IFRS 9 impact disclosed in July. The shares now trade on a 2018e P/E (price/earnings ratio) of 10.7x and offer a dividend yield of 3.4%. We argue that the valuation does not fully reflect the growth trend or the defensive quality of H&T Group. The current share price represents an interesting potential entry point, in our view.

LEGAL NOTICE – IMPORTANT – PLEASE READ:

Proactive Research is a trading name of Proactive Investors Limited which is regulated and authorised by the Financial Conduct Authority (FCA) under firm registration number 559082. This document is published by Proactive Research and its contents have not been approved as a financial promotion by Proactive Investors Limited or any other FCA authorised person. This communication is made on the basis of the 'journalist exemption' provide for in Article 20 of The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and having regard to the FCA Rules, and in particular PERG 8.12.

This communication has been commissioned and paid for by H&T GROUP PLC and prepared and issued by Proactive Research for publication. All information used in the preparation of this communication has been compiled from publicly available sources that we believe to be reliable, however, we cannot, and do not, guarantee the accuracy or completeness of this communication.

The information and opinions expressed in this communication were produced by Proactive Research as at the date of writing and are subject to change without notice. This communication is intended for information purposes only and does not constitute an offer, recommendation, solicitation, inducement or an invitation by, or on behalf of, Proactive Research to make any investments whatsoever. Opinions of and commentary by the authors reflect their current views, but not necessarily of other affiliates of Proactive Research or any other third party. Services and/or products mentioned in this communication may not be suitable for all recipients and may not be available in all countries.

This communication has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Before entering into any transaction, investors should consider the suitability of the transaction to their individual circumstance and objectives. Any investment or other decision should only be made by an investor after a thorough reading of the relevant product term sheet, subscription agreement, information memorandum, prospectus or other offering document relating to the issue of securities or other financial instruments.

Nothing in this communication constitutes investment, legal accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate for individual circumstances or otherwise constitutes a personal recommendation for any specific investor. Proactive Research recommends that investors independently assess with an appropriately qualified professional adviser, the specific financial risks as well as legal, regulatory, credit, tax and accounting consequences.

Past performance is not a reliable indicator of future results. Performance forecasts are not a reliable indicator of future performance. The investor may not get back the amount invested or may be required to pay more.

Although the information and date in this communication are obtained from sources believed to be reliable, no representation is made that such information is accurate or complete. Proactive Research, its affiliates and subsidiaries do not accept liability for loss arising from the use of this communication. This communication is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, such communications are prohibited.

This communication may contain information obtained from third parties, including ratings from rating agencies such as Standard & Poor's, Moody's, Fitch and other similar rating agencies. Reproduction and distribution of third-party content in any form is prohibited except with the prior written consent of the related third-party. Credit ratings are statements of opinion and are not statements of fact or recommendations to purchase, hold or sell securities. Such credit ratings do not address the market value of securities or the suitability of securities for investment purposes, and should not be relied upon as investment advice.

Persons dealing with Proactive Research or members of the Proactive Investors Limited group outside the UK are not covered by the rules and regulations made for the protection of investors in the UK.

Notwithstanding the foregoing, where this communication constitutes a financial promotion issued in the UK that is not exempt under the Financial Services and Markets Act 2000 or the Orders made thereunder or the rules of the FCA, it is issued or approved for distribution in the UK by Proactive Investors Limited.

Latest Research