Recommendations » UK

H&T Group (LON:HAT) report: Sell-off unwarranted

Contributed by Daniel Stewart & Company

By Daniel Stewart & Co

- H&T has delivered outstanding profits growth in recent years. Between 1993 and 2005 annual Adjusted Profits were to be found in a narrow range between approximately break-even and ?4.2m.

- However, since 2006 an ambitious store expansion strategy (68 stores at beginning of ’06, rising to 122 by end of ’09, plus 50 Retail Mall Units) has seen profits rise from ?4.7m to an estimated ?17.6m in 2009.

- The result in 2009 is expected to have benefitted from “supernormal” scrap profits. While our forecasts for 2010 assume that these do not continue, although it is a possibility, an Adj. PBT forecast of ?14.9m is indicative of a business that is extremely efficient, highly profitable and one that represents further profit potential as the recently and aggressively expanded store portfolio matures.

- The gold price has certainly benefitted the business, but this is not the only reason for strong profits growth. Structural inefficiencies in the unsecured lending market are likely to provide a boon to the core pawnbroking business in the short to medium-term, hence our positive stance on the stock. Continue to BUY.