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There are such a lot of low-cost shares within the UK proper now that it may be arduous to know the place to start out. Fortunately, I’m an enormous believer in Peter Lynch‘s view that “the best stock to buy is the one you already own.”
The idea here is that if I already own shares in a company with sound fundamentals and growth potential, it may be worth buying more rather than constantly seeking new investment opportunities.
One holding in my own Stocks and Shares ISA that’s declined over the previous few months is Ramsdens Holdings (LSE: RFX). It’s down 15% because the finish of August regardless of the pawnbroker not too long ago posting file income and upping its dividend.
Right here’s why I’ve chosen to purchase extra shares.
A really strong FY 2023
The corporate’s 4 enterprise segments are international foreign money trade, pawnbroking loans, shopping for and promoting treasured metals, and the retail of second-hand and new jewelry.
Whereas the variety of UK pawnbrokers is in decline, Ramsdens continues to broaden and now has 165 retailers. It additionally has a rising on-line presence.
On 15 January, the corporate launched sturdy outcomes for the 12 months to the top of September. Income rose 27% 12 months on 12 months to £83.8m whereas pre-tax revenue reached a file £10.1m, up 22% on final 12 months’s £8.3m.
Fundamental earnings per share elevated 17% to 24.5p, up from 20.9p.
This sturdy efficiency was pushed by development throughout all the group’s segments. And its energetic pawnbroking mortgage e-book ended the 12 months 19% greater, reaching a file £10.3m.
The complete-year dividend was lifted by 16% to 10.4p per share. This equates to a payout ratio – the proportion of earnings an organization pays out in dividends – of 42%. The agency plans to lift this to 50%.
For FY 2024, the forecast dividend yield is 5.4%, with the payout properly lined 2.1 instances by anticipated earnings.
One other enticing characteristic right here is the sturdy and asset-rich balance sheet, with £13m in money on the finish of September.
Fintech menace
One potential menace I do see for its journey cash enterprise is the secular shift from money to digital. Apps like Revolut make foreign money switch easy these days, doubtlessly jeopardising additional development on this a part of the enterprise.
The agency did launch a brand new Mastercard multi-currency card in September, with the hope of capturing a larger share of its clients’ vacation spend. However I’ll be monitoring this fintech menace.
That mentioned, my concern is lessened by the truth that the enterprise combine stays well-balanced. Overseas foreign money trade represents solely 30% of gross revenue, regardless of the FX within the inventory’s ticker image.
I’m shopping for
Trying forward, I believe the corporate stays well-positioned in a fragile economic system bedevilled by greater rates of interest. Demand for its providers, particularly small loans, ought to keep sturdy.
In the meantime, the value of gold is anticipated to stay excessive as a consequence of geopolitical uncertainty. This advantages each its pawnbroking and treasured metals shopping for operations. Certainly, income within the latter surged by nearly 50% final 12 months.
Lastly, the inventory appears to be like like a discount, buying and selling on a price-to-earnings ratio of simply 8.5. I believe the share worth weak point provides a pleasant shopping for alternative, and it’s one I intend to take.
