Hardman & Co’s recent research into British pawnbroker H&T Group PLC (AIM:HAT) outlines how the AIM-listed business is experiencing growth due to a combination of reduced competition and heightened customer demand.
The research highlights that the average pledge lending value in the first half of 2023 was £423, with loans typically lasting 97 days. Several factors have led to reduced competition in the sector:
- Claims Management Companies (CMCs) have targeted home collect companies, many of which have ceased trading. However, it's not economical for CMCs to target pawnbroking advances due to their nature
- Credit unions have shifted towards larger loans and often require customers to have a savings history, making them less competitive with H&T's target demographic
- Most branch-based lenders shut down after the Global Financial Crisis, leaving only a few like Everyday Loans, whose minimum loan of £1,000 exceeds H&T's average
On the demand side, many customers use pawnbroking for immediate living needs. With rising inflation, basic necessities are becoming more expensive, leading more people to seek short-term finance from pawnbrokers.
This trend is evident in H&T's results from the first half of 2023, and the demand is expected to grow in the coming years.
However, the increased revenue from pawnbroking has been offset by rising administration and finance costs.
Administration costs surged by 19% in the first half of 2023, driven by inflation and an increase in staff numbers. Unexpected cost hikes were also noted in non-payroll areas, such as secure courier costs and insurance.
Pawnbroking scrap, which includes proceeds from gold scrap sales, has seen growth. The gross value of these sales reached £14.6 million in June 2023, up from £7.1 million the previous year.
H&T's foreign currency exchange services have also seen growth, with transaction volumes at record levels.
The company is focusing on this area as a potential growth avenue, supported by the introduction of a Click and Collect service and a broader range of currencies available in-store.
In the purchasing segment, H&T experienced a 44% year-on-year increase in purchase values, driven by high gold prices and inflationary pressures on customers.
H&T, being the sixth-largest jewellery and watch retailer in the UK, saw retail sales growth of 11% in the first half of 2023.
However, profits declined due to changes in product mix and pricing strategies. Online sales, accounting for 23% of the total, grew by 79% compared to the first half of 2022.
The research emphasises that pawnbroking is a low-risk form of financing.
The risk is minimized due to factors like low loan-to-value ratios, direct control over assets, and the short-term nature of the loans.