Founded in 1897, Sutton-based H&T Group (HAT.L), through its subsidiaries, primarily provides pawnbroking services from 108 stores across the UK. The company also offers various services, including sale of new and second-hand jewellery; sale of gold scrap; third party cheque cashing; and payday advances, which are short term cash loans repayable on the customer’s next pay date. Other services include unsecured loans; cashplus, a prepaid debit card; foreign exchange currency service; and LogBook Loan product, which includes referring a customer to third party, providing loans secured on personal vehicles.
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On January 8th 2018, HAT published a trading update for Y/E 31st Dec 2017. The company said a strong Q4 performance for pawnbroking and retail has led to expectations for full year PBT to come in above current market expectations. The pledge book increased 11.6% to £46.1m as a result of the higher gold price, the concession format and an increase in loans on quality watches. Personal Loans increased by 94.7% to £18.3m as a result of expansion in the group’s longer term, lower interest rate loan product. CEO John Nichols said demand for products “remains strong and we look to the future with confidence.”
Although HAT enjoyed an excellent year, it was the brief November dip in the share price that triggered value alerts across VectorVest metrics during Q4 2017. The dip showed as a consequential increase in the GRT (forecasted Earnings Growth Rate) chart, and despite increases since then, HAT still logs a GRT of 19.00%, which VectorVest considers to be very good. GRT reflects a company’s one to three year forecasted earnings growth rate in percent per year. Added to this the stock scores highly across RT (Relative Timing) and RV (Relative Value) metrics, plus the DY (Dividend Yield) of 2.7 % is above the current average of 2.63% for all the stocks in the VectorVest database. Although a fair RS (Relative Safety) rating of 0.99 (scale of 0.00 to 2.00) means that the opportunity is only for those traders who can manage risk proactively, in terms of value HAT is rated at 467p per share, so is undervalued at today’s price of 355p per share.
The chart of HAT.L is shown above using my normal format. Earnings per share EPS is shown as the blue line study in the window below the price. EPS has grown strongly and smoothly over the last year. The share is undervalued by VectorVest and is on a Buy recommendation. Former resistance has become support as shown by the horizontal line on the chart. This is positive for the share. Technicians will have noticed the gap up on the 8th January which normally precedes a strong upward move.
Summary: As can be seen previously, specialist lending companies feature regularly among top VectorVest growth company picks. HAT certainly occupies a unique space in this regard: the company is 120 years old, and is the go-to pawnbroker for those needing to raise cash against personal valuables. The other services and loan offerings provided by HAT gives it greater resilience and an attractive risk profile compared to rival offerings, something VectorVest believes will help to close the current valuation gap in the run up to FY results mid March. Buy.
Dr David Paul
January 9 2018
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