A key element of H&T’s business model is the retention of high-quality staff, to deliver good customer service in its branches. This service culture has enabled H&T to establish market leadership in the UK, with strong customer loyalty in the localities it serves. The company estimates that 90% of pawnbroking revenue comes from repeat customers.
The business has attractive defensive qualities as an investment, given the liquid nature of the collateral, and conservative lending policies. Indeed, H&T delivered earnings growth right through the 2007-2009 financial crisis.
H&T Group has delivered an earnings per share (EPS) compound annual growth rate (CAGR) of 17.9% over the last five years (to 2018e) and a dividend (DPS) CAGR of 20.3%. In the last financial year, the company delivered a pre-tax return on equity (RoE) of 13.1% (pre-tax profit / net asset value) and has demonstrated the ability to keep reinvesting to grow the loan book and the business while maintaining a dividend pay-out (DPS/EPS) of more than 30 % every year for the last five years.
For a company with strong defensive attributes and good growth prospects, we argue that the current P/E valuation of only 10.9x (2018e) represents an interesting potential entry point.Full report is available via Capital Network website