Pawnbroker-to-jewellery retailer Ramsdens (RFX:AIM) says half year and full year pre-tax profit will now be ‘significantly ahead’ of market expectations. The news sends shares in the relative AIM newcomer racing 16% higher to 166.5p.

The Middlesbrough-based outfit has benefited from strong summer trading. Rising gold prices, boosting its precious metals buying, and solid pawnbroking operations, are all contributing to jewellery retail initiatives.

SHINY & NEW

Shares flagged the investment attractions of Ramsdens, whose roots can be traced back to the 1970s, here in June, adding the name to our Great Ideas portfolio with the shares swapping hands at 142p-a-pop.

At today’s price, Ramsdens has swiftly rewarded us with a 17.3% gain and the shares are 94% north of this February’s 86p AIM IPO issue price; Ramsdens came to market with the strategy of leveraging its strong brand and balance sheet to grow organically and via acquisitions.

A growing, diversified, financial services provider and retailer, operating in the four core business segments of foreign currency exchange, pawnbroking loans, precious metals buying and selling and retailing of second hand and new jewellery, we highlighted the growth and income appeal of the company and the re-rating potential of the equity to boot.

Our bullish call is validated by today’s well-received update, in which Ramsdens CEO Peter Kenyon enthuses:

‘We are delighted to report a strong trading period across all the company’s core business segments and in particular a strong peak trading period for foreign exchange. We have a trusted and recognised brand, a leading store portfolio, an exceptional team and a diversified offering.’

UPGRADES ENSUE

Following the stellar update, Liberum Capital pushes through some material upgrades to its estimates and hikes its price target from 162p to 190p, implying there’s at least 14.1% of near-term upside on the table.

For the year to March 2018, the broker upgrades its adjusted pre-tax profit and earnings per share estimates by 22% to £5.9m and 15.3p, while the dividend forecast is left unchanged at 6.5p. That means cash generative Ramsdens still offers a plump 3.9% yield, even after its superb share price advance. For the year to March 2019, Liberum now sees taxable profits rising to £6.2m for earnings of 16.1p and a 7.1p shareholder reward.

Liberum is ‘encouraged by the update and see the group as being very well positioned in a market whose competitive dynamics are improving. Much of Ramsdens natural competition is exiting or significantly scaling back its high street presence. We believe this presents both organic and acquisition opportunities.'

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