H&T Group plc (LON:HAT) is the topic of conversation when Hardman & Co’s Analyst Mark Thomas caught up with DirectorsTalk for an exclusive interview.
Q1: Mark, you’ve called your recent piece ‘2024 Results, Reasons to be Cheerful 1, 2, 3, 4 and 5’. What can you tell me about that report?
A1: H&T Group’s 2024 results were reassuringly in line with expectations. They delivered 10% pre-tax profit growth, with the pledge book capital value up 26%, retail sales up 27% and forex profits up 11%.
The outlook remains positive with firstly, strong demand in the core pawnbroking business where H&T is taking market share and may have increasing acquisition opportunities. Second, consumer trends favouring its multi-channel value for money, new and used product retail offering. Thirdly, an expanding range of currencies help the forex profit growth. Fourth, a continued high gold price helps a couple of its divisions. And fifth, the growth in store numbers is helping all product lines.
Now, economies of increasing scale should help to mitigate cost growth that is outside management control.
Q2: As you highlighted, though, the core pawnbroking business showed very strong growth, and you looked at the future with optimism. Why is that?
A2: In our previous notes, we’ve described why there is very strong demand for pawnbroking loans at a time of very limited supply in short term small sum credit. This was borne out again in these results with, as I mentioned, the 26% increase in the pledge book in 2024.
Now, we agree with management comments about the drivers in 2024, customers being cash flow constrained, limited supply, etc., and that they will continue into 2025. We have a chart in our report which illustrates the strong growth we are forecasting for September ‘25.
The broad spread of 2024 growth by store, location, customer type is all encouraging for its sustainability. Now, by way of an example, many of the larger stores defined by H&T as ones with a million plus pledge book saw the fastest growth across the network.
Q3: Your second reason to be cheerful, I think, was the retailer. What can you tell me about that?
A3: Trading in 2024 has continued to show customers’ preference for lower priced items, and that plays very well to the group’s overall market position as a value for money jewellery retailer. As I mentioned, the retail sales increased by 27% to £62 million and the growth rate was very consistent through the year. It was 27% at the half year, which again is encouraging for its sustainability.
H&T’s approach has been to give customers the maximum range of options by product, so watches and jewellery, etc. Product type, new versus pre-owned, and channel, store and online. The flexibility this introduces means that the group can outperform pure jewellery retailers, which may be much more restrictive in their offering by H&T servicing all customer choices. We also saw a small widening of margins in 2024.
Q4: Can you tell me a bit about the Forex, gold price, and managing the network of stores?
A4: Our final three reasons to be cheerful were firstly Forex, where profits grew 11% on transaction volumes up 10% on the prior year and again, this growth has been consistent through the year. First half profits were up 10% on volumes at 9%, which is very encouraging. What the group has done here is add the number of currencies held in stores, rolled out a click and collect service, and applied the lessons across the network that it learned following its Maxcroft acquisition.
H&T has widened margins in its gold-related activities, keeping the price it pays flat as the gold price has risen to record levels. This gives it more options to manage any subsequent fall in the gold price than players who have simply chased more volumes. The group has the largest network of stores of any pawnbroker and continues to add new branches and refurbish existing ones. Rising costs make the acquisition of established businesses a lower risk option than organically opening new stores, and those cost pressures may encourage some sellers to have more realistic selling prices.
Q5: Finally, can you tell me about the risks?
A5: All investments have risks. H&T Group’s customers are cash constrained. Its business risk for money laundering and stolen goods is above average, but our detailed review of the company’s controls shows them to be very good.
We believe sentiment to the pawnbroking industry is a specific risk, but they have a strong ongoing communication programme to address what are often outdated or simply incorrect assumptions. Inflation and cost outside management control, such as the recent national insurance increase and the lowering in terms of the national insurance limit, presents risk to the cost base, and they are a specific short-term consideration. We devoted a section in our recent report to this subject and how H&T is taking mitigating action.
We also have a whole section in our initiation report explaining our view as to why the group is a low-risk company.
