Also posted this on r/UKInvesting, but thought I'd repost here :)
(I hold having bought recently)
Happy New Year all! Over the holidays I've been doing some obsessive cash flow calculations on a bunch of companies, on the hunt for value and thus asymmetric bets for 2021 and beyond.
Ramsdens Holdings (LON:RFX) is one that fell into my sights. It's a small company with a market cap of £43m. They are in the business of pawnbroking, jewellery sales, foreign exchange (cash for holidays) and precious metal purchasing. They caught my eye after I watched an excellent interview with their CEO, who has been with the company for donkey's years, originally joining when they were family-run, then leading a management buy-out when the old owners wanted to retire. He led the company to an IPO in 2017 and still has significant skin in the game with a 3.74% shareholding. He comes across as extremely knowledgeable of his sector, business savvy and entrepreneurial.
This year the company was hammered primarily by the lack of holidays meaning people their FOREX services took a huge hit, but also they took a hit from the initial store closures (note their stores are now open as they are classed as essential). They have made heavy use of furlough and even with stores reopened are still drawing on furlough and operating reduced hours to cost-match the demand on their services. It's interesting to note that even with the COVID impact they still managed to turn a profit this year.
They have £15.9m cash on their balance sheet (37% of their current market cap!) and net gearing of -19%. Current ratio of 3.97 showing good liquidity. So balance sheet is rock solid.
In terms of business quality the last 5 years have seen a ROCE of 14.9% to 23.4% - impressive numbers.
I think their business is well diversified to manage whatever kind of economic recovery (or not) comes next year; pawnbroking and precious metals services do well in recessions and FOREX and jewellery sales do well in good times. Overall I see no reason why this company shouldn't return to at least a stable level of operation.
Owner earnings (net income + depreciation + amortisation + other non-cash items - CAPEX) show an annual average (mean) of £7.52m over the last 10 years.
Here's my discounted cash flow projection of future owner earnings (intrinsic value being the sum of future earnings and…
