SIF Portfolio: I revisit H&T and debate my dividend rules

Wednesday, Nov 15 2017 by
SIF Portfolio I revisit HampT and debate my dividend rules

In August I decided not to add pawnbroking and lending group H&T to the SIF portfolio. My reasoning was that it didn’t add much useful diversification. That may have been true. On the other hand, H&T might have added some much-needed profit to the portfolio!

As often happens when I override my screening results, H&T shares have risen since the end of August, thanks to strong trading and upgraded full-year guidance. So my mission this week is to make a final decision on this stock. Does it still offer the kind of value and growth potential I’m looking for?

A dividend debate

Before we look at H&T, I’m going to take a quick diversion into my stock selection rules. I often think about how I might improve the screening rules I use to select stocks. And readers sometimes contribute suggestions too, for which I’m always grateful.

I generally prefer to invest in dividend-paying companies. I see dividends as a good discipline for management, and a useful indicator of profit and cash generation. But I’m well aware that many investors do well by focusing on capital gains and total returns, without worrying about yield.

I recently wondered whether my requirement for a flat or growing dividend yield of at least 1.5% might be an unnecessary restriction.

To test the impact of these requirements, I disabled the rules in my screen relating to yield and dividend growth. Doing this increased the number of qualifying stocks from 15 to 22.

That seemed encouraging, but when I looked at the new stocks, they didn’t seem that appealing. There were a number of dual-listed overseas energy stocks, a couple of small cap miners plus two stocks I might consider -- Wizz Air Holdings and Standard Chartered.

On balance, the nature of the extra stocks suggests to me that it’s prudent to require a dividend for SIF stocks. The portfolio’s focus is on affordable growth from reliable performers. I don’t want to increase the level of speculative risk, and I don’t want to focus on pure growth stocks or turnarounds.

My dividend rules will remain unchanged for now.

Back to H&T

Graham Neary covered H&T in depth following the group’s interim results in August. More recently, Paul Scott took a look when the firm upgraded its full-year guidance.

I won’t repeat Graham’s…

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H&T Group plc is a non-trading holding company. The Company provides a range of simple and accessible financial products tailored for a customer base, which has limited access to, or is excluded from, the traditional banking and finance sector. Its segments include Pawnbroking, which is engaged in providing secured loans against collateral (the pledge); Gold Purchasing, which is involved in buying Jewelry directly from customers through its stores; Retail, which is involved in retail sales of gold and jewelry, and the retail sales are forfeited items from the pawnbroking pledge book or refurbished items from its gold purchasing operations; Pawnbroking Scrap, which comprises various other proceeds from gold scrap sales other than those reported within Gold Purchasing; Personal Loans, which comprises income from its unsecured lending activities, and Other Services, which comprises third party check encashment, buyback, prepaid debit card product and foreign exchange currency services. more »

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18 Comments on this Article show/hide all

Rani 15th Nov '17 1 of 18

I am just a novice when it comes to investing but I found this article very helpful, particularly the analysis which I would learn to apply to other stocks. H&T was on my watch list so is Wizz. I would like to see Rolands analysis of Wizz too!


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Sutherland 15th Nov '17 2 of 18

Before adding H & T to portfolio suggest you look at Ramsdens Holdings (RFX). Weakness for you might be modest yield but it is early days.

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herbie47 15th Nov '17 3 of 18

In reply to post #241343

Too late.

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sharmvr 15th Nov '17 4 of 18

@sutherland - interesting comment. I hold RFX, invested around IPO and done well from it (so far). I keep thinking about (and not actioning) taking some profit and reinvesting in H&T. At the time of RFX investment, I found better value compared to HAT, but that has since changed (pb, pe, yield), although RFX likely offers more growth given acquisition strategy. Would be interested in any thoughts since I repeatedly battle with run profit/cut loss and have regretted both at various times. Don't have to sell RFX but not sure about sector concentration in portfolio, and regulatory risk given they lend you what might be considered vulnerable customers. And to clarify, I am not making a comment on ethics, but the investment risk. Ethical considerations for an investment are up to the investor only imho

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Sutherland 16th Nov '17 5 of 18

In reply to post #241378

Currently RFX have a slightly better PE and, earnings forecast than H&T, they also have impressive cash flow whereas H&T is unimpressive. Dividends are similar RFX's weakness is the value rank (36). This seems a bit harsh to me and difficult to justify. At this point I still prefer RFX but recognise the risk in a recent floatation. RFX have 5 directors of which 3 are non-executives with pretty impressive CVs for a small company. One reason why I like the company..

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herbie47 16th Nov '17 6 of 18

Just had a look at Ramsdens Holdings (LON:RFX), they do look expensive Mcap to net profit, 57/2. ALso digging in the accounts, the last 6 months upto 31 march was a loss and so was the same half year last year, H & T (LON:HAT) does seem more consistent. Interim results are out soon for Ramsdens Holdings (LON:RFX). Net profits in 2015 were £15m, then 2016 only £1.7m?

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Roland Head 16th Nov '17 7 of 18

In reply to post #241843

Hi Sutherland,

Thanks for suggesting Ramsdens Holdings (LON:RFX). One reason I won't buy it for SIF is that it doesn't qualify for my screen. But that aside, I do prefer H & T (LON:HAT) because of its larger size and market share, and also because of its stronger asset backing -- I see that Ramsdens is trading at around 2.5 times book value, compared to about 1.3 for H&T.

In my view, this asset backing provides good downside protection in the event that things don't go to plan.

Other than that I agree that at first glance, Ramsdens does seem attractive too.



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iwright7 29th Nov '17 9 of 18

Does anyone know why H and T is tanking?

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robin66 29th Nov '17 10 of 18

In reply to post #246748

Don't know but Ramsdens Holdings (LON:RFX) is also down this morning. Gold price not down, wonder if there is any news re regulation etc?

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ISAallowance 29th Nov '17 11 of 18

In reply to post #246748

Director exercised options and immediately sold them yesterday. I'm guessing it is related to that.

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tomg23 29th Nov '17 12 of 18

In reply to post #246748

Director exercised options yesterday and subsequently sold £300,000 worth of shares which could have spooked a few investors

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herbie47 29th Nov '17 13 of 18

In reply to post #246748

No don't know but I have noticed that. CEO sold his share options, on 27/11/17.

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iwright7 29th Nov '17 14 of 18

In reply to post #246793

Strange when they recently announced they would, exceed expectations.  You have to wonder what the CEO knows that we don't?

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willhampson 29th Nov '17 15 of 18

I always find reactions like this a little strange. Presumably the CEO has a life outside of the company - house(s), mortgage(s), family, new car etc. So why is it surprising that he has exercised and sold his options (92k odd shares). He still holds over 1 million shares. Needless to say, I bought some more yesterday as was not expecting to see sub-300 again.

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iwright7 29th Nov '17 16 of 18

In reply to post #246838

Agreed about the need to pay bills but surely most of us would wait until after exceed expectation results are published. Maybe though he is being philanthropic by giving the rest of us chance to buy at a advantageous price?

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willhampson 29th Nov '17 17 of 18

In reply to post #246848

Bills and the taxman wait for no man... But, yes, I am grateful for the (hopefully) good buying opportunity. All the best.

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herbie47 29th Nov '17 18 of 18

In reply to post #246838

Well I expect he will sell at a good time and he should know what's going on in the company. I have followed directors sales, Solid State (LON:SOLI) was one I sold out in Aug 2015, if you look at the chart you will see what happened next. The market is a bit twitchy at the moment so anything like large directors sales will spook some people out of shares. I don't feel with H & T (LON:HAT) there is that much to worry about but there is a long time before the results come out.

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About Roland Head

Roland Head

I'm a private investor and writer on stock markets, with a particular fondness for free cash flow, dividends and value. I also have a lingering interest in commodity stocks. In earlier life, I worked as an engineer in telecoms and IT. The rules-based approach required for this kind of work undoubtedly influenced my investing style. I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a large and now defunct Canadian firm.  My investment focus is increasingly on developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. more »


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