Merryn's Blog

Pawnbrokers are still worth buying into

Recessions aren't bad news for everyone. There's one particular recession-proof sector we've been tipping for quite some time now – pawnbroking. And with good reason.

Recessions aren't bad news for everyone. There's one particular recession-proof sector we've been tipping for quite some time now pawnbroking.

And with good reason. Britain's largest pawnbroker, Albemarle & Bond (LSE: ABM), has just reported its full-year results for the year to 30 June. Pre-tax profit jumped to £14.6m, from £9.74m the year before, on sales of £55.5m (up 18%). The final dividend was hiked by 44% on last year to 6.5p a share, giving a total dividend of 8.85p.

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A number of factors were behind the good performance. A&B has benefited from lower interest costs on its bank lending, and it has cut its debt. Its pawnbroking arm, of course, has done well, with income rising 30% to £25.8m. That's been helped by the higher gold price (the company can get more for any gold pledges that end up being scrapped). But even its jewellery retail arm hasn't done badly, given the state of the economy sales actually rose by 3% to £19.7m.

In all, that's pretty good going, and the shares have reflected that, rising 20.5% in the past year, compared to a gain of 6% or so for the FTSE All-Share.

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So if you're holding A&B, what should you do now?

The group is now trading on a forward p/e of 12, and paying a dividend yield of around 3.6%. That still looks pretty reasonable to us. Ultimately, A&B and pawnbroking in general - is a play on the gold price staying strong and the economy staying weak. Over the longer run, we reckon that those are both decent bets.

If you haven't already bought into the sector, H&T Group (LSE: HAT), A&B's rival, is also worth a look on a p/e of below 10, although the dividend yield is a less attractive 2.5%.




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