MIDAS SHARE TIPS UPDATE: Bright prospects for pawnbroker H&T

In 1897, Walter Harvey and Charles Thompson opened a pawn shop in Vauxhall, South West London. Today, H&T is the largest pawnbroker in the UK, with 273 outlets and also a thriving jewelery business.

Last week, CEO Chris Gillespie revealed a 31 per cent increase in pre-tax profit to £8.8m for the six months to June 30 and expressed confidence in the future, with the interim dividend rising by 30 per cent to 6.5 pence.

Pawn brokerage was once considered a rather shady business, with dimly lit shops charging exorbitant rates to unhappy customers. H&T strives to suppress that kind of image. The shops are bright, the staff is friendly, and interest rates range from 2 to 10 percent per month.

Most loans are for around £200 and are repaid within three months, with clients ranging from individuals to small business owners.

The number of customers is increasing. Many households struggle to make ends meet, few businesses are willing to lend small amounts to struggling consumers, and some people actively prefer to use pawnshops for their financing needs. A growing number of companies also turn to H&T for short-term loans when cash flow is an issue and bills need to be paid.

Contracts run for up to six months and the vast majority of customers – 85 percent – ​​pay off their loans early and get back their possessions, usually gold jewelry or watches. H&T makes an effort for customers who are in trouble, but some end up giving up their items for good. Others are eager to sell from the start, and H&T can be a willing buyer if products meet the group’s specifications. These goods are then offered for sale alongside brand new jewelery and watches. At one time, most self-respecting consumers wouldn’t dream of rummaging through pawnshops for coveted gold wares.

Today, the tide is turning, as eco-conscious millennials are actively opting for pre-loved goods because their carbon footprint is smaller. This has led to a surge in demand for second-hand jewelery and watches from H&T, which now account for more than 80 per cent of retail sales, almost £19 million in the first six months of 2023 alone.

With a limited supply of small loans and a rising demand for old jewellery, the outlook for H&T is bright. Midas recommended the company in 2017, when there were 181 stores and shares were £2.70. Today, store numbers are up almost 50 per cent and shares are up to £4.15, with most brokers expecting further progress.

A profit of £29.5 million is forecast for 2023, up 55 per cent on last year. A dividend of 21.5 pence is forecast for the current year, rising to 28 pence in 2024. Gillespie also hopes to continue an energetic store opening programme, which will take the group to 350 stores in the coming years.

Midas verdict: H&T has experienced impressive growth and the stock has responded, rising 54 percent since 2017. Existing shareholders can choose to invest some profit at current levels, but they are not allowed to sell completely. Pawn brokerage is in growth mode and H&T is not only the largest operator in the country, but also one of the best. A strong long-term bet.

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