Small Cap Value Report (13 Mar 2017) - HAT, RXB

13th Mar '17 by Graham Neary

53 comments 18397 reads

Morning,

I am likely just to cover H & T (LON:HAT) today. Without further ado:

H & T (LON:HAT)

Share price: 270.75p (-0.6%)
No. shares: 37m
Market cap: £100m

(Please note that I currently have a long position in H & T (LON:HAT).)

This remains my largest holding (25% of my portfolio - I do not recommend that others run such a concentrated portfolio as this).

I am pretty happy with these results:

The pledge book is now 6% bigger at £41 million, despite the number of stores having reduced to 181 (from 189).

But the biggest change in the KPIs is the gold purchasing margin having increased from 15% to 26%.

Even though I'm a goldbug, and fully anticipate that the gold price will be a long-term tailwind for H&T, I'm also really excited by the opportunities created by the company's move into related financial services: personal loans, FX and buyback (pawnbroking for electronics, basically).

In that regard:

the personal loan book is now worth £9.4 million (up from £4.2 million).
the volume of buybacks is up to £8.5 million (from £6 million).
FX gross profits almost doubled to £2.7 million (from £1.4 million).

So the sources of income have become more diversified, though they all rely on the company's core financial competencies.

Note that the loan book is something of a wild card - it's far from clear how big it could eventually get, and what its profitability might eventually be.

It generated interest worth 92% of its size in 2016, but 40% of this was lost to impairments (customer defaults). So the margin after defaults came in at 55% of the average size of the book - still highly encouraging. That margin should gradually reduce as the book gets bigger.

Net debt is up by a few million to £5.4 million - this is to be expected when the pledge books/loan books are growing. The CEO has said previously how he wished the company's net debt was higher, because it would be a side-effect of having found more profitable opportunities!

In terms of regulation, today's statement reiterates that all H&T personal loans are below the FCA's interest cap on short-term credit - "in reality, the…

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Paul Scott

14th Mar '17

Chris/Clive,

I love you to bits!

We all love you to bits! :-) No harm done.

Cheese, PP./

Wildrides

This comment is under review

I was only a few years old then Karl , and only trading Corgie di cast at the time

xcity

"Graham is a hand-picked, highly experienced commentator. Also, a modest, charming, and very smart fund manager, who has handled a £600m portfolio.

I'll back Graham to the hilt. So any attack on Graham, is an attack on me.

Maybe we should use a different font in future?"

Hi Paul,

Clearer visibility and definition of who is writing what would be appreciated.
However good you both are, your strengths, weaknesses, perspectives and opinions are quite different.

bestace

"Monday, Mar 13 2017 by Graham N"

"Paul Scott adds the following comment:"

"(This section by Paul.)"

Seems clear enough to me. Furthermore their writing styles are completely and recognisably different. What more do you want?

Rusty2

I prefer a separate report, it's then clear who is writing it. Maybe it's time to rename these reports, as mentioned before they are not so much Small Cap Value Report anymore.

steviej

Exactly

Chris Jackson

15th Mar '17

Paul

Rightly or wrongly I read this to be a half assed apology for your original crass comments. Whether it is or not - it matters not.

In summary, while I erroneously concentrated on the HAT messages, rather than the author, (kindly flagged up to me by both Clive and Howard) perhaps you should follow through the threads before responding. No need for you to showboat and make smart ass insults to a contributor who had already apologized - twice. I previously considered just ignoring your comments but decided an answer really was appropriate.

While I continue to acknowledge your financial expertise/wisdom, I think you need some training in manners.

17th Mar '17

Hi Chris,

Yup, I'll take this one on the chin.

I apologise to you for being rude & getting carried away in the heat of the moment.

Hope no harm done.

Best wishes, Paul.

Hello Paul.

Thank you for your apology. I think you need to give yourself one strike for the post as it violated numerous site "guidelines". I have flagged this under the "reporting" requirements - although as you are probably judge/jury and on the "Moderation Team", not sure how the sentencing will work out.

Regards

Chris

FREng

7th Aug '17

Good call! Telit Communications (LON:TCM) shares are down 40% today.

Oozi Cats is still promising a profitable outcome for the year ("adjusted EBIDTA") so maybe the fall is an overreaction. Any views?

I sold out at 215p, I'm pleased to say.

Telit Communications (LON:TCM) down 40% today.

Paul

Telit Communications (LON:TCM) is down 40% today though the update says:

The Group expects revenues of $400 million - $430 million for year to 31 December 2017

o Any further than anticipated delays of revenues are expected to fall into 2018

· The Group expects adjusted EBITDA of $47 million - $60 million for year to 31 December 2017

· Group confident of reporting over 15% revenue growth for year ended 31 December 2018

Aislabie

FREng, thanks for your note. I am delighted to have dodged some losses here (I sold at 345p) but I am no stranger to losses on other stocks!.
I don't think it is time to go back in as I am sure that this will prove Ed Crofts observation that profit warnings tend to lead to extended declines. (And Warren Buffett's wry comment that "there is rarely only one cockroach in the kitchen")
I sure it will grow and even prosper eventually, but there will be plenty of time to get back in once the future is clearer, it takes a while for people to get over a whacking like this. I certainly would wait for Oozi Cats to seriously trim his own pay and benefits.

"I certainly would wait for Oozi Cats to seriously trim his own pay and benefits."

I think we'll be waiting a very long time!

I see Oozi Cats sold £24,077,508 worth of shares at 340p in May 2017. Its often a good idea to follow directors selling. Yes it is a problem I had with this company, I think excessive remuneration is the correct term.

Wimbledonsprinter

As Aislaibe has mentioned before, the cash flow generation needs to be watched. In this half -year, net debt fell only by $8.4 million, despite a $49.7 million capital raise (partly offset by a $7 million acquisition and a $5.7 million dividend). I make that a balance of $22.1 million that has gone on CAPEX, R&D and operating cash burn. Receivables levels have been mentioned before on this thread but now Inventories are also increasing.

Look also at note 5, footnote 2:"An amount of $19.1 million was classified in the balance sheet as short-term debt, as a result of the Group not meeting one of the convenants imposed on it by one of its banks at 30 June 2017. As at the date of this report, the relevant bank has waived the covenant and the Group is no longer in breach".

On top of this no interim dividend.

Thanks! Well spotted for note 5 footnote 2. That looks somewhat ominous as does the cash burn.

The Internet of Things is real and it will generate big profits for some companies, but the competition is getting quite crowded and it's far from clear that TCM will be among the winners.

9th Aug '17

Re Telit Communications (LON:TCM), note this morning's statement re Mr Cats' leave of absence. I don't know what was known on Monday, when Telit had its conference call - but it is noticeable if you look at the transcript (on the Telit website) that the CFO was taking the lead in answering the questions.

It turns out that we probably won't have to wait for Oozi to make this decision!

Small Cap Value Report (13 Mar 2017) - HAT, RXB

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Graham Neary

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