1H’24 results: Four-one at half time, but the one wins

First half 2024 H&T results saw pre-tax profits rise 12.5% from 1H’23 to £9.9m. We have identified five key ongoing business messages, four of them favourable and one unfavourable. The scale of the latter, though, means we have reduced our FY’24 estimates by £3m, but still forecast double-digit profit growth. The positive messages were i) strong demand for pledge lending (gross advances up 14% to £146m), ii) retail sales up 27% with an improving margin, iii) FX delivering double-digit profit growth, and iv) good cost control. The downside was a repeat, indeed acceleration, in last year’s unusually high spring redemption levels impacting income and capital levels.

• Other issues: Gold purchasing profits rose from £4.2m to £5.5m but this line can be volatile. Given the seasonality of the business, and after shareholder consultation, H&T is moving to a September year-end from 2025. Prior period equivalent numbers will be available and like-for-like comparators provided for best transparency.
• High redemption rate: For the second year in a row H&T saw a sharp increase in redemptions in spring, a factor not previously experienced. More normal levels are now being seen (as they were in 2023) but pledge balances were £5m lower as a consequence with a loss of income. Mitigating action has been taken.
• 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 detail below, the average indicative valuation is 459p. As H&T is a growing business, there is upside potential from moving forward the base year.
• Risks: H&T’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 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, a 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 2024, there is further growth in customer demand from the cost-of-living crisis, with few alternative regulated competitors.

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