MID SHARING TIPS UPDATE: The Bright Prospects for Pawnbroker H&T
Observation summary: H&T is the UK’s largest lender
In 1897, Walter Harvey and Charles Thompson opened a pawn shop in Vauxhall, South West London. Today, H&T it is the UK’s largest pawn shop, with 273 outlets and a thriving jewelery business as well.
Last week, chief executive Chris Gillespie revealed a 31% rise in pre-tax profit to £8.8m for the six months to June 30 and expressed confidence in the future, with a 30% increase. in the interim dividend at 6.5 pence.
Pawnshops were once considered a rather shady business, with poorly lit shops charging exorbitant fees to unlucky customers. H&T strives to suppress that kind of image. The shops are bright, the staff friendly, and interest rates range from 2% to 10% per month.
Most loans cost around £200 and are paid back in three months, with clients ranging from individuals to small business owners.
The number of clients is increasing. Many households are struggling to make ends meet, few businesses are willing to lend small sums to struggling consumers, and some people actively prefer to use pawn shops for their lending needs. A growing number of businesses are also turning to H&T for short-term loans when cash flow is an issue and invoices need to be paid.
The contracts last up to six months and the vast majority of clients (85%) repay their loans early and recover their belongings, usually gold jewelry or watches. H&T makes an effort with struggling customers, but some end up saying goodbye to their items forever. Others are willing to sell from the start, and H&T may be a willing buyer if the products meet the group’s specifications. These products are then displayed for sale, along with new jewelry and watches. It used to be that most self-respecting consumers wouldn’t dream of rummaging through pawnshops for the coveted gold wares.
Today, the tide is turning, as eco-conscious millennials actively opt for “pre-loved” products because their carbon footprint is smaller. This has led to a surge in demand for H&T pre-owned watches and jewelery, which now account for more than 80% of retail sales, nearly £19m in the first six months of 2023 alone.
With limited supply of small loans and increasing demand for vintage jewelry, the outlook for H&T is bright. Midas recommended the company in 2017, when there were 181 stores and shares cost £2.70. Today, the number of stores is up nearly 50 per cent and shares are up to £4.15, with most brokers expecting further progress to come.
Earnings of £29.5m are forecast for 2023, an increase of 55% on last year. A dividend of 21.5p is forecast for the current year, increasing to 28p in 2024. Gillespie also expects to maintain a dynamic store opening programme, taking the group to 350 sites in the coming years.
Midas Verdict: H&T has delivered impressive growth, and shares have responded, rising 54 percent since 2017. Existing shareholders may choose to bank some profits at current levels, but they shouldn’t sell out entirely. Pawnshops are on the rise, and H&T is not only the largest pawnbroker in the country, but also one of the best. A strong long-term bet.
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