Investors looking to invest in pawnbrokers, currently enjoying a rise in popularity on the back of the strength of gold, will find better value with H&T Group shares than those of its competitor Albemarle & Bond, research firm Equity Development believes."H&T has had a stellar first half and has twice warned investors that profits were higher than other analysts expected," the firm notes."The pledge book continues its steady growth, more from the gradual maturing of existing stores than from the initial impact of new store openings (it appears likely that gross profit from the core pawnbroking business will be 40%+ higher when the new stores opened since 2004 reach maturity) and so the PSC [pawn service charge] should continue to rise in line with that," Equity Development believes. The firm is expecting profits from purchasing gold will be lower in the second half of the year but the market is a volatile one and remains difficult to predict. "Profits for the year will be sensitive to the unpredictable level of gold purchasing as well as to the value of retail sales in the pre-Christmas period so we should prefer to quote a range of £23m to £26m: our central estimate is £24.6m on a Headline Earnings basis (£23.2m reported under IFRS), leading to earnings per share of 50.0p and dividends (including the special) of 9p."The earnings forecast puts the shares on a price/earnings ratio of just 4.8, which Equity Development notes is a 38% discount to the rating of its main rival, Albemarle & Bond and a 59% discount to the All-Share index.Even with an expected drop-off in profits from gold purchases, the research firm believes a discount of more than 34% is unreasonable.
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