# H&T Group: Pawnbroking’s current appeal

- Link: https://www.directorstalkinterviews.com/ht-group-pawnbroking%e2%80%99s-current-appeal/4121121085
- Published: 2023-06-06T08:54:30+01:00
- Author: Amilia Stone

In our 15 March initiation, Pawnbroking royalty, with strong, profitable growth,
we highlighted that **H&T Group plc** (LON:HAT) core is pawnbroking and related 
retail services operations. As other small-sum, short-term lenders have withdrawn
at a time of heightened demand, H&T’s well-capitalised, low-risk proposition has
unique growth opportunities, which are expected to fuel strong earnings growth (
2024E EPS 4.2x 2021 levels). We also note that the dividend is progressive (2024E
yield 5.3%). H&T’s AGM trading statement on 10 May confirmed our positive expectations.
In this note, we focus on the reduction in competition at a time of heightened demand
and the low-risk nature of H&T’s pawnbroking business.

 * **Strong growth:** The pawnbroking pledge book saw strong growth, rising to
   ca.
   £106.5m at the end of April, from £100.7m at 31 December 2022), despite recent
   above-normal redemptions (expected to have short-term impact), as some customers
   wanted their jewellery for Coronation events. Despite this drag, the growth is
   in line with our full-year forecast.
 * **Other businesses:** Retail sales (to end-April) were up 13% YoY. Margins have
   continued to moderate, as expected, primarily because of mix. Forex revenues 
   are up 10% YoY. Gold purchase volumes have been in line with forecasts. Scrap
   margins continue to benefit from a strong gold price.
 * **Valuation:** We use a range of valuation approaches, including a Gordon Growth
   Model (GGM), a Discounted Dividend Model (DDM) and a Discounted Cashflow Model(
   DCF). On the assumptions we detailed in the initiation, the average indicative
   valuation is 606p. As H&T is a growing business, there is upside potential moving
   forward the base year.
 * **Risks:** H&T Group’s customers are cash-constrained. Its money laundering, 
   stolen goods risk and other regulatory controls are appropriate to pawnbroking.
   We believe sentiment to the industry is a specific risk, which needs careful 
   communication to overcome. Inflation risk to the cost base is also a specific
   short-term consideration.
 * **Investment summary:** H&T Group is focused on delivering the opportunity in
   its core pawnbroking and related retail businesses. Having gained pawnbroking
   market share, and with the collapse of most other competitors, its strong balance
   sheet means it is structurally well-positioned to finance demand for small-sum,
   short-term credit. This generates a strategic, long-term competitive advantage
   from which to grow earnings. For 2023, there is growing customer demand from 
   the cost-of-living crisis, with few alternative, regulated competitors.

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