Pawnbroker H&T (HAT) looks like it is beginning to turn the corner. A stabilising gold price, progress in its jewellery retail division and a strengthening balance sheet point to a solid half-year result, according to an upbeat trading statement issued by H&T management.

Plummeting gold prices and increased regulation of lending products have hurt the industry in recent years.

Pawbroker H&T price to book value

Pawnbrokers make loans, typically against some form of collateral, usually gold. When the price of gold falls, the value of the collateral falls versus the loan value, meaning customers are more likely to default.

Gold prices slumped from above $1,800 an ounce in 2010 to around $1,129 an ounce today. Sliding collateral values, as well as reduced profits from gold buying, led to H&T’s main high street rival Albemarle & Bond going into administration and de-listing in 2014.

Tighter regulations and interest rate caps have also impacted the range of products high street lenders can offer, leading to a reduction in payday loans, for example.

Yet H&T now looks like it can return to growth, according to analysts at N+1 Singer, driven by its growing second-hand jewellery retail offering and strengthening end-markets in lending.

‘H&T has provided an in-line half-year update to 30 June 2015,’ writes analyst Andrew Watson.

‘As retail continues to perform well and pawnbroking appears to have stabilised with strengthening fundamentals, we believe that management should now focus on revenue growth.

‘H&T’s capital structure is not efficient given the balance sheet asset backing and we expect that the board will look to pay a fuller dividend in full year 2015.

‘Our 12 month target price moves to 220p from 164p and our recommendation to "buy".’

Watson forecasts full-year earnings per share at 15p, rising to 17.2p the year after. Adjusted net assets value (NAV) per share is estimated at 172p, which Watson believes may provide some downside protection for the share price.

Half-year results will be published on 18 August. Shares in H&T trade 0.6% higher at 200p.

Issue Date: 08 Jul 2015