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The business mixes across the two firms are not identical, but strong first-half results from competitor Ramsdens earlier this month bolster this column’s faith in pawnbroker H&T.
We already have a healthy book profit, with 25.5p a share in dividends in the bag and a further 10p to arrive this week, and the stock looks quite capable of providing both further capital appreciation and income.
Ramsdens flagged record profits from its jewellery, retail, and foreign currency operations, while a 29pc increase in the pawnbroking loan book was further evidence of the need for the Middlesbrough-headquartered concern’s services.
Strong demand for pawnbroking further supplemented the precious metals business, itself boosted by high gold prices of about $2,000 an ounce.
The read-through from Ramsdens to H&T cannot be taken too literally, since there are some different dynamics at work – the former opened six new stores and made a small acquisition, too.
That said, H&T’s upbeat spring trading update revealed the £193m cap company had added seven stores to its estate, two by acquisition, to take the total to 274, with more planned and a refurbishment programme under way at others.
In addition, H&T experienced record demand for pledge lending in January and March, just as Ramsdens did, and both companies’ services have clearly been in demand as households have fought to make ends meet in an environment of sticky inflation and rising interest rates.
Nor does that environment seem certain to change for the better particularly quickly.
Increases in the pledge book, partly funded by last year’s £16.9m equity raising and £15m in additional borrowing, provide a firm base for analysts’ forecasts that are calling for increases of 17pc, 65pc and 40pc in sales, pre-tax income and the dividend in 2023. Further advances are expected for 2024.
This does not mean to say H&T is immune to some of the pressures that face other firms and indeed its customers. Increased utility bills and higher wages are adding to the company’s own costs base and management is having to respond with efficiency programmes.
Even so, H&T comes with very sound financial foundations. Net debt is just £23m, including leases, and that represents barely 14pc of shareholders’ funds. Operating profit of £20.6m covered the £1.5m net interest bill many times over in 2022.
The combination of the ongoing cost of living squeeze and H&T’s strong competitive and financial position within the fragmented pawnbroking market suggests the shares look cheap, on eight times forward earnings with a dividend yield of nearly 5pc.
Questor says: Hold
Stock ticker: HAT
Share price at close: £4.38
Update: Yellow Cake
Almost unnoticed, uranium prices are surging to a 14-month high of nearly $58 a pound. It is hard to divine whether this is the result of financial buying, while the Toronto and New York-traded Sprott Physical Uranium Trust continues to gobble up the commodity, or trade buying, with utilities becoming increasingly fretful about security of supply, as the number of planned new nuclear reactors rises and the West seeks to shun Russian supply.
Either way, Yellow Cake is well placed to capitalise should uranium prices continue to advance.
Environmental campaigners and investors may cringe, but nuclear power could well be needed if the world is to meet net-zero carbon emission targets.
China has plans to hugely increase its nuclear power generation capacity, as does Russia, and if Russian product, enrichment capability and transport networks are unavailable then there may not be enough product to go round, especially as no one has invested in supply for more than a decade, thanks to the accident at Fukushima in Japan in 2011.
If industrial buyers have to compete with financial buyers, then uranium prices could be well underpinned – and remember that the commodity rose seven-fold between 2004-07 to reach a peak near $140 a pound during the last big scramble for supply.
Completion of a new purchase of 1.35m pounds of uranium from Kazatomprom, funded by February’s £62m capital raising, will take Yellow Cake’s total holdings in its specialist warehouses to 20.2m pounds.
At the prevailing spot price and dollar exchange rate that inventory has a net value per share of 465p, adjusting for cash and liabilities. The shares trade at a 12pc discount to that and they could yet add to our paper profit of nearly 90pc.
Questor says: Buy
Ticker: AIM:YCA
Share price at close: £4.17
Russ Mould is investment director at AJ Bell, the stockbroker
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