The cost-of-living crisis hasn’t been generally good news for high street companies, which are mostly geared to the strength of the consumer. Not so pawnbroker HAT(HAT), which grew its profit before tax by 90% year as so-called “pledge lending” – where valuables are used by borrowers as collateral against loans – rose by 50%.
Having hit £100.7m by the year end, the pledge book has continued to rise in 2023, hitting £104m by the end of February as monthly lending volumes hit record levels as more and more households struggled to make ends meet in the face of soaring inflation. The company noted a surge in borrowing from first time customers, with 13% of loans to new borrowers and new customer volumes up 40% over the year.
The pawnbroking industry has been helped by the withdrawal of other forms of small sum, short-term credit, noting that the overwhelming majority of its loans were for around £200. H&T said that, as the market leader with 250 outlets across the UK and growing, it expected to disproportionately benefit from this trend, noting that demand for larger value loans was growing, often against high-quality watches which now represent 15% of the pledge book
Such items are often resold via H&T’s retail division, which is now the UK’s sixth largest retailer of jewellery and watches. Retail sales rose by a quarter to £25.2m, with sales of second-hand watches with an average retail price of £1000 particularly buoyant.
Supplies of some pre-owned product lines have been constrained, which has meant the need to sell new lines which come with a lower margin, but the company said the growing pledge book and expansion of its processing centres should see the proportion of new items drop back from the current 22% of the total.
Foreign exchange services have also been strong, with revenues back to pre-pandemic levels reflecting the recovery in overseas travel. The company has identified foreign exchange as a key growth area, and is upping its investment in the division, which grew net income 90% to £5.7m last year.
Chief executive Chris Gillespie commented: “The past year has been a challenging period for businesses and individuals alike. Following on from the Covid-19 pandemic, 2022 brought levels of inflation not seen for a generation - particularly in food, fuel, and utility prices - and rising interest rates. Against this backdrop, H&T has delivered strong growth and a resilient operational performance and enters 2023 with increasing trading momentum.”
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These results fully demonstrate H&T’s naturally counter-cyclical qualities, but also the beneficial effect of targeted investment in the business and the synergies across its various divisions.
Delving into the figures also suggest that far from being at the end of the current period of economic weakness there could be more pain on the way for consumers, not least the record pledge lending in the first two months of the year and the growing numbers of first-time customers.
Meanwhile the growth of retail – underpinned by the pledge book – and expansion of foreign exchange is creating opportunities for itself to thrive even as better economic times return.
Brokers expect revenue growth of 18% to £193.7m in 2023, which would deliver pre-tax profit 72% higher at £33.9m. Forecast EPS of 57.9p leaves the company trading on a lowly forward PE ratio of less than 8x, while the forecast dividend yield stands at 5%, even though the shares have climbed by more than 60% this year.