Shopping for a bargain

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Based in Middlesbrough Ramsdens (RFX: 147.5p), a diversified financial services group whose primary businesses encompass currency exchange, retail jewelry, pawn shops, and a precious metals buying and selling service, announced a 30% increase in pre-tax profits to £ 8.5million. increase earnings per share (EPS) from 16.7p to 21.4p during the 12 months ended March 31, 2020.

Record performance justifies more than including stocks, at 165p, in my best market Good business portfolio 2019. However, after hitting an all-time high of 260p in January, stocks returned the gains as investors readjusted their future expectations amid the UK foreclosure and general economic uncertainty. Ramsdens closed all of its 159 stores on March 23 and laid off 700 employees.

Fortunately, the group has a strong balance sheet, a key point in my investment case, closing the year with net funds of £ 11.1million (38p per share) and has access to an untapped credit facility. of £ 10million. able to comfortably cover a monthly cash outflow of £ 1million since the lockdown began. In addition, the directors strengthened the cash position by realizing £ 2million by wiping out gold stocks with a decent profit, and also converted £ 1million from foreign currency into cash. In addition, CFO Martin Clyburn plans to recover around £ 3million of the group’s payroll from the UK government’s UK government job retention program.

Performance of Simon Thompson’s bargain equity portfolio in 2019
Company Name ITLOS Opening price 01.02.19 Bid price 05/28/20 or exit price (see notes) Dividends Percent change
TMT Investments (note 1) TMT 250 ¢ 580 ¢ 20 ¢ 140.0%
Futura Medical (note 2) FUM 14.85p 34p 0p 129.0%
Bloomsbury editions BMJ 229p 216p 8.03p -2.2%
FinTech Augmentum AOT 102.4p 98p 0p -4.3%
Mercia Asset Management (note 3) THANK YOU 29.57p 27.5p 0p -7.0%
Ramsdens Holdings RFX 165p 145p 7.5p -7.6%
Interior INL 57.75p 50p 3.1p -8.1%
Litigation Capital management BED 77.5p 60.2p 0.71p -21.4%
Group of drivers DRV 74p 46p 1.25p -36.1%
Jersey Oil and Gas TO JOG 205p 102p 0p -50.2%
Mean 13.2%
FTSE All-Share Total Return Index 6 852 6 459 -5.7%
FTSE AIM All-Share Total Return Index 1,023 992 -3.1%
Note 1: Simon advised to take profits on TMT Investments at 580c per share on Monday, September 9, 2019 (“Takeover, takeover bids and profit-taking”, September 9, 2019). The sale price is the one used in the performance table.
Note 2: Simon advised to take profit on Futura Medical at 34p per share on Monday October 14, 2019 (“Good business stocks: golden opportunities”, October 14, 2019). The sale price is the one used in the performance table.
Note 3: Simon advised to sell Mercia Asset Management at 27.5pa shares on Monday, December 9, 2019 (“Share taking and profits”, December 9, 2019). The sale price is the one used in the performance table.
Source: Opening price of the London Stock Exchange at 8:00 a.m. on Friday February 1, 2019 and last offer price at 11:00 a.m. on May 28, 2020 or the date on which Simon advised to leave the holding company.

The business outlook is much better when a third of stores reopen by mid-June. A potential beneficiary will be the pawn shop activity (accounting for a quarter of gross profit) which can provide short-term relief to cash-strapped but asset-rich clients who may decide to pledge their gold and jewelry. . Their assets are worth more now, as the price of sterling gold has risen 39% in the past 12 months. The sustained price of gold should also benefit the buying and selling of precious metals, a segment accounting for one-fifth of gross profit.

Interestingly, managing director Peter Kenyon said online jewelry sales have been “very positive since the lockdown,” perhaps an indication of continued underlying demand which has driven double-digit profits up from division over the past 12 months.

Of course, currency volumes, a segment accounting for 37% of gross profit, will be limited until vacationers can board the plane again, but Mr. Kenyon’s opinion is that “there will be less competition, we will take market share and gain a greater margin ”. He is right because the former Thomas Cook stores acquired by Hays Travel last fall do not offer currency exchange and Hays certainly does not have the money to do so now. The independents don’t have deep pockets either, he adds.

Analysts believe too light

Although management guidance has been withdrawn, Liberum Capital has taken a stab at the forecast, forecasting pre-tax profit of £ 3.9million and EPS of 9.8p in fiscal 2021 I think this is far too conservative for several reasons.

First, 47 stores have a lease term or expiration within the next 12 months. Mr Kenyon is negotiating steep rent cuts, after agreeing to a 46 percent rent cut at a Hartlepool store and a 25 percent cut at Elgin. It is in a strong negotiating position.

Second, even if jewelry sales slow down, Ramsdens can easily sell stocks of gold bought from consumers for scrap in order to maintain profits.

Third, the loan of pledge books is at “60% or less of the price of gold” so that there is an incentive in a rising gold price environment for existing pledges to be. reimbursed so that clients retain ownership of their assets, while attracting new clients requiring a cash advance. It is also positive for interest income and the quality of the loan portfolio.

Fourth, Ramsdens is well positioned to take market share from struggling foreign exchange traders, and also has sufficient balance sheet funding to exploit acquisition opportunities in pawn shops.

So, although profits for the coming year are lower than the record performances of 2019-2020 due to the disruption induced by Covid-19, Ramdens’ business is far more resilient than Liberum’s estimates suggest. That’s just not factored in, with stocks trading five times adjusted earnings in cash based on 2019-20 results and 11 times Liberum’s low estimates for the coming year. To buy.

■ Simon Thompson’s latest book Successful stock selection strategies and his previous book Stock selection for profit can be purchased online at www.ypdbooks.com, or by calling YPDBooks on 01904 431 213 to place an order. The books are not sold by any other source and are priced at £ 16.95 each plus postage and packaging of £ 3.25 [UK].

Special offer: Both books can be purchased for the special price of £ 25 plus postage and packaging reduced by just £ 3.95. The books include case studies of the companies in Simon Thompson’s trading stock portfolio beating the market, outlining the investment characteristics that made them successful investments. Simon also highlights many other investment approaches and equity filters that he also uses to identify small cap companies with investment potential. Details of the content of both books can be viewed at www.ypdbooks.com.

Simon Thompson was named 2019 Small Cap Journalist of the Year at the 2019 Small Cap Awards.

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