MIDAS SHARE TIPS UPDATE: Pawnbroker H&T’s bright prospects

Watching brief: H&T is the largest pawnbroker in the UK

In 1897, Walter Harvey and Charles Thompson opened a pawnbroking store in Vauxhall, South-West London. Today, H&T is the largest pawnbroker in the UK, with 273 outlets and a thriving jewellery business too.

Last week, chief executive Chris Gillespie unveiled a 31 per cent increase in pre-tax profits to £8.8 million for the six months to June 30 and expressed confidence in the future, with a 30 per cent rise in the interim dividend to 6.5p.

Pawnbroking was once considered a rather shady business, with ill-lit shops charging exorbitant rates to hapless customers. H&T strives to suppress that kind of image. Stores are bright, staff are friendly and interest rates range from 2 per cent to 10 per cent a month.

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

Customer numbers are rising.Many households are struggling to make ends meet, few firms are willing to lend small sums of money to hard-pressed consumers and some people actively prefer to use pawnbrokers for their borrowing needs.A growing number of businesses also turn to H&T for short-term loans when cashflow is an issue and bills need to be paid.

Contracts are for up to six months and the vast majority of customers – 85 per cent – repay their loans early and retrieve their belongings, generally gold jewellery or watches. H&T makes an effort with customers in trouble but some do end up parting with their items for ever. Others are keen to sell from the start and H&T can be a willing buyer if products meet the group’s specifications. These goods are then displayed for sale, alongside brand-new jewellery and watches. Once, most self-respecting consumers would not dream of rummaging in pawn shops for coveted gold wares.

Today, the tide is turning, as eco-conscious millennials actively opt for ‘pre-loved’ goods because their carbon footprint is lower. This has prompted a surge in demand for H&T second-hand jewellery and watches, which now account for more than 80 per cent of retail sales, almost £19 million in the first six months of 2023 alone.

With small loans in limited supply and demand for old jewellery on the rise, H&T prospects are bright. Midas recommended the company in 2017, when there were 181 stores and the shares were £2.70. Today, store numbers are up by almost 50 per cent and the shares have surged to £4.15, with most brokers expecting further progress ahead.

Profits of £29.5 million are forecast for 2023, a 55 per cent increase over last year. A dividend of 21.5p has been pencilled in for the current year, rising to 28p in 2024. Gillespie is also hoping to maintain an energetic store-opening programme, taking the group to 350 sites in the next few years.

Midas verdict: H&T has delivered impressive growth and the shares have responded, rising 54 per cent since 2017. Existing shareholders may choose to bank some profits at current levels but they should not sell out completely. Pawnbroking is in growth mode and H&T is not just the biggest operator in the country but also one of the best. A strong long-term bet.

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