Questor: H&T has endured four months of ups and downs. What should investors do?

Richard Evans 11 December 2019 • 5:55am

H&T and Albemarle & Bond shops side by side — In September H&T agreed to buy 113 'pledge books' – portfolios of loans secured on customers’ goods – from Albemarle & Bond Credit: Oli Scarff /Getty Images

Questor share tip: strong results and an opportunistic acquisition were followed by a review of lending practices that could lead to ‘redress’ payments

A great deal has happened to H&T, the pawnbroker, and to the wider sector since we covered the firm just four months ago, so we must look afresh at our advice to buy the shares.

Interim results published a week after our tip reported “revenue growth from all core business activities”, a 7.9pc rise in pre-tax profits to £6.8m and a 6.8pc increase in the interim dividend; the shares gained strongly over the next couple of weeks.

Then in early September the rival chain of Albemarle & Bond abruptly shut all its shops after its Japanese owners decided that the business was likely to struggle after Brexit. The rushed closure did not reflect well on pawnbroking because customers were left unable to retrieve goods they had pledged as security and were in some cases unable to contact the firm.

However, two weeks later H&T agreed to buy 113 “pledge books” – portfolios of loans secured on customers’ goods – from A&B for about £8m. H&T said this “positive outcome for customers” would enable them to redeem or extend their existing pledges conveniently through its shops.

The acquisition of the A&B assets followed that of 65 outlets from the Money Shop, as we reported in our original tip.

When it announced the Albemarle & Bond deal, H&T said it was continuing “to trade well and ahead of the board’s expectations”. It added: “Alongside the strong performance of the existing business, the group is pleased with the financially accretive and strategically attractive opportunities that it has executed this year to strengthen its market position.

"The board is confident that the acquisition of the [A&B] assets announced today will further improve profitability for the year as a whole.” This optimistic tone buoyed the shares in the following weeks and they hit a high of 398p on Oct 7. We had tipped them at 325p, so at that point our gain was 22.5pc.

Then came the bad news. On Nov 18, the company announced that it was reviewing creditworthiness assessments and lending processes in its payday loans business and had stopped making such loans while the review was taking place.

Although it said these loans accounted for less than 4pc of overall revenues, H&T admitted that it might have to pay redress to customers if the review uncovered any failings. The shares are now back at 325p.

The company added: “Should any redress be payable, H&T anticipates being able to fund this from its existing financial resources. The board confirms that, this aside, H&T continues to trade well.”

What are its “existing financial resources”? The interim results referred to £14m of unused money from a debt facility with Lloyds, although since then it has spent £8m on the A&B loan books and a net £10m on Money Shop assets, offset by £6m from the sale of new shares. We can therefore guess it now has about £2m to play with.

Against £13.5m in annual pre-tax profits last year, £2m sounds unwelcome rather than a disaster. We can hope for higher profits (before the costs of any redress) in future thanks to this year’s acquisitions.

We originally tipped H&T with help from Chris McVey, a fund manager at Octopus Investments. He told Questor yesterday: “We remain supporters of H&T and the management strategy, and believe the company will continue to deliver returns for shareholders over the years ahead.”

We will hold on.

Questor says: hold

Ticker: HAT

Share price at close: 325p

Update: RWS

RWS, the patent translation firm, has been one of this column’s best performers. Annual results published yesterday included rises of 16pc in sales, 45pc in pre-tax profits (20pc on an “adjusted” basis), 59pc in earnings per share (22pc adjusted) and 17pc in the annual dividend.

Andrew Brode, the chairman, described it as “another remarkable year”.

Questor says: hold

Ticker: RWS

Share price at close: 639p

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