Daily Grime - HAT/KW

H&T Group (LON:HTGR) – Acquisition & Update

• Acquisition & Update Yesterday at 4.43pm H&T acquired 113 pledge books from Albemarle & Bond which has recently closed all its branches causing much upset to customers unable to redeem their property. Consideration is £8m and no branches are being transferred. The size of the pledge book is not disclosed. Given the distressed state of the closed business I imagine this would have been a value purchase. The trading update is ahead of expectations with recent acquisitions trading well alongside the strong gold price helping.

• Estimates Forecasts are for 23% PBT increase in the year to Dec 19 to £16.6m followed by 15% growth £19.1m. EPS grows by 18% in the current year to 34.5p and 15% to 39.1p in 2020. This looks like the forecasts may be 10% too low.

• Valuation ROE is expected to increase to 11.8% this year pre yesterday’s acquisition, while the shares trade at a 35% price/book. PER 11X and yield 3%

• Conclusion Like buses everything comes at once. The gold price is helping, competitors are failing presenting opportunities while there is a stressed consumer requiring the services of a friendly pawnbroker. While it looks set fair the shares have now trebled from their lows in 2013. The valuation improvement has come through and there is probably another two years of upgrades to come. Its important to remember to sell this one when the market mistakes it for a growth stock.

Kingswood Holdings (LON:KWG) – H1 Results

Share Price 11.25p

Mkt Cap £25m

Conflict Disclosure: No Holding

Begbies Traynor (LON:BEG) – Tip

• Tipped in the Midas column over the week end - based on last year’s 16k insolvencies growing towards the 26k achieved in the golden years of insolvency. They mention the target of £100m of revenues in 3 years.

• Forecasts are for £66m this year rising to £70m revenue in 2022, so the targeted revenues aren’t in forecasts. To bridge the gap may need acquisitions. The Exeter restructuring consultant was acquired in September at 2.7X revenue while in April a chartered surveyor business was acquired at c 1X revenue. So to bridge the £30m gap it seems likely the company will need to pay £30m, which on a £92m mkt cap is significant, and could overhang the share price.

• Acquisitions This is one of the rare companies that has shown it can acquire at a better ROE than reinvesting in its own business so the acquisition strategy would seem to be fully justified. Last year ROE increased from 3.9% to 5.5%. The shares trade at a 8% discount to NAV. To get above NAV the market needs to be anticipating a double digit return which is close to a doubling of profits from here. And extra £30m revenue at 20% operating margin would achieve that. The last two acquisitions made 20% and 30% operating margins respectively.

• Conclusion The acquisition strategy could turn this into a growth stock. This is effectively a bet on the rate of acquisitions. I think they may be able to deliver - and more.

Stanley Gibbons (LON:SGI) – Visit

Share Price 2.05p

Mkt Cap £9m

Conflict disclosure: No holding

Conclusion If the company traded profitably it could trade at 2-3X revenues. But with £11m debt and £5.5m of pension deficit the company is trading at an EV/Sales of 2.8X today. There is a lot of work yet to do to achieve profitability. With a refurbishment and a new website revenue could start to grow but I suspect this is one to revisit in 6 months’ time rather than being an opportunity today. The inherent gearing of the share price makes this a warrant on profitability rather than an equity investment