It’s a gem! Why pawn shops that sell jewels could put sparkle in your shares portfolio
IN 2001, when Peter Kenyon joined
Ramsdens, the company consisted of three pawnbrokers. Last week, Kenyon opened his 136th store, in Worksop, Nottinghamshire.
Unlike many on the High Street, Ramsdens is thriving – and at £1.66 the shares are a bargain. The number of stores is growing, customer numbers are increasing and there is plenty of potential for expansion. The balance sheet is rock-solid too, so shareholders should expect decent dividends for the foreseeable future.
Ramsdens has branched out over the years as well. Today, the stores offer foreign currency for customers going on holiday. They sell attractive new jewellery, as well as unclaimed pawn items. And they buy jewellery from consumers who no longer want it, selling the precious metal at face value or reconditioning items for resale in store.
There is a fast-growing online business too, with dedicated websites for foreign currency and jewellery. Both divisions are flourishing but online jewellery is making particularly strong progress, with sales up more than 120 per cent in the first six months of Ramsdens’ financial year.
Interim figures, published late last month, highlighted Ramsdens’ resilience. Even though the exceptionally hot summer kept many holidaymakers at home, the group delivered a 10 per cent increase in revenues to £24million for the six months to September 30, while gross profits rose 4 per cent to £16.7 million. Pawnbroking and precious metal purchases showed steady progress and jewellery profits rose by an impressive 23 per cent.
Investment in the business – opening new stores, training staff and such like – meant that pre-tax profits slipped 3 per cent to £5million but the dividend still rose 9 per cent to 2.4p, reflecting Kenyon’s confidence in the future.
Having opened four new stores during the six-month period, the company is on schedule to open 12 by March 2019, expanding at a similar pace for several years to come. Recently opened sites have been performing above management expectations and there is a strong pipeline of potential new shops.
Ramsdens is based in Middlesbrough and most of its stores are in the North of England, with a cluster in Wales and Scotland. More than 800,000 customers visit the shops each year, attracted by Ramsden’s competitive foreign exchange offering and increasingly attractive shop fronts. Once filled mainly with unclaimed pawn items, the focus on new jewellery is playing out well, expanding Ramsdens’ customer base and driving sales.
The group benefits from weak competition too, as peers have been hit by payday loan problems and other issues. Ramsdens only lends money against pawn items and 85 per cent of customers repay their loans and retrieve their jewellery, often within a few weeks. The average borrowing is £220 but some customers take out considerably more, such as £30,000 as down payment for a new Ferrari.
On the foreign exchange side, most customers take out money to see them through the first few days of their holiday, generally around £350. Holidaymakers are increasingly using cards and online apps for overseas spending but Ramsdens supplies travel cards too and offers international money transfer services for consumers who need to make large purchases abroad.
Stores are invariably bright and attractive, financial transactions take place in special booths and staff are highly trained, with a focus on friendly, efficient service. Kenyon takes a great deal of time ensuring that sites are well located and decently priced. A banker by profession, he is known for his caution, supported by the rest of the board, all of whom are former chartered accountants.
Brokers expect annual sales to rise at least 12 per cent to £45million with pre-tax profits flat at £6.5million, rising to £7million in 2020. A dividend of 7.1p has been pencilled in for the current year, increasing to 7.8p in 2020.
MIDAS VERDICT: Ramsdens floated on the stock market in 2017 and has delivered a robust performance as a listed business. It should continue to do well, despite economic and political uncertainty. Competitively priced and smartly run, the group offers products and services that customers want at a price they can afford. At £1.66, the shares should rise in value and the dividend yield – of more than 4 per cent – is enticing too.