Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Greggs’ sausage roll dilemma, the battle for Christmas shoppers, and UK pawnbroking as gold exposure?
1.1k Plays3 months ago
In this week’s episode, Lawrence is joined by Megan Boxall, Graham Neary, and Roland Head to talk through the first full week of company updates of 2025. With the newswire springing back to life midweek, we discuss:
- The contrasting fortunes of Greggs and B&M - will they be able to continue seeing growth from store rollouts alone, or will other approaches be needed? Plus, how much would Megan pay for her regular order from Greggs?
- Major UK supermarkets reported on their Christmas trading this week - is the trend of the middle class “shopping down” starting to reverse?
- H&Ts trading update, and the benefits of owning a growing pawnbroker as a form of exposure to gold.
- The differing fortunes of two healthcare stocks going through acquisitions.
Access on-the-day analysis of the biggest stories every weekday with Stockopedia's Daily Stock Market Report. Discover it with a 14-day trial of our stock market research platform at stk.pe/pod
Stocks we discuss
Greggs: https://www.stockopedia.com/share-prices/greggs-LON:GRG/
B&M European: https://www.stockopedia.com/share-prices/bm-european-value-retail-sa-LON:BME/
Tesco: https://www.stockopedia.com/share-prices/tesco-LON:TSCO/
Marks and Spencer: https://www.stockopedia.com/share-prices/marks-and-spencer-LON:MKS/
H&T: https://www.stockopedia.com/share-prices/h-t-LON:HAT/
Poolbeg Pharma: https://www.stockopedia.com/share-prices/poolbeg-pharma-LON:POLB/
Alliance Pharma: https://www.stockopedia.com/share-prices/alliance-pharma-LON:APH/
Next: https://www.stockopedia.com/share-prices/next-LON:NXT/
Fast Retailing Co: https://www.stockopedia.com/share-prices/fast-retailing-co-TYO:9983/
Extra Stockopedia content we mention:
Catch up on our roundtable webinar here: https://www.stockopedia.com/academy/events/analyst-roundtable-stocks-to-watch-in-2025/
Host: Lawrence Judd
Analysts: Graham Neary, Megan Boxall, Roland Head
Let us know what you thought of this episode: https://www.surveymonkey.com/r/NG3L235
Disclosures: At the time of recording, Graham owns shares in Next.
Disclaimer: We do not provide personalised financial advice. None of our content constitutes or should be understood as constituting a recommendation to enter in any securities transactions or to engage in any investment strategies discussed in our content. We do not provide personalised recommendations or views as to whether a stock or investment approach is suited to the financial needs of a specific individual. It is very important to do your own analysis before making any investment based on your own personal circumstances.
Recommended
Transcript
Introduction and Overview
00:00:05
Speaker
Hello and welcome back to this week's episode of Companies and Markets Weekly from Stockopedia. I'm Lawrence, I'm your host for today and I've got a full panel with me today of Graham, ah Graham Neary, Megan Boxall and Roland Head. It was a slow start to the week news-wise but yesterday, Thursday, and the newswire sprang back into life and so we do have some things to talk about this week.
00:00:31
Speaker
We've got ah Christmas trading updates from some of the bigger supermarkets and value retailers in the UK. We're going to talk a bit about those and some insights into UK consumer behavior and how they are adapting to that. We've got a leader in the UK pawnbroking market updating and we're also going to talk a little bit about some of the takeovers that have happened this week as bigger players keep sweeping up companies that they see as undervalued. We're also going to touch briefly on a reverse merger that you may have missed over the Christmas break.
B&M's Financial Challenges
00:01:07
Speaker
So yeah, first up, should we start with the value retailers? Megan, Graham, I know you looked at Greggs and B&M or BME this week. What stood out to you there? Yeah, so I covered B&M with the ticker BME and it was
00:01:30
Speaker
Noteworthy that the shares fell by over 10% on the day, so that was Thursday. and Despite the Q3 update seeming to be pretty okay, and management were very confident. They even announced a special dividend worth £150 million. pounds ah But I think the market has really gone cold on ah value retailers, especially if you think of the likes of ShoeZone as well. Of course, ShoeZone is much smaller. But um these retailers that are competing on price and where you know there's a lot of overheads, especially staff overheads, which um which may increase now. um
00:02:20
Speaker
It just seems as if the trend has kind of gone away from value retailers, both in terms of ah consumer sentiment, perhaps a little bit, but especially the stock market sentiment has really gone against them. ah In terms of B and M, I was ah i was neutral on this one. and I don't think I mean, after it and and in it was virtually in line this trading update, um they narrowed their profit guidance slightly. So you know there was a slightly negative movement in terms of their profit guidance. ah But the company is highly leveraged in terms of having a big net debt figure of 800 million pounds almost. and Now, the company can probably carry that debt comfortably enough.
00:03:10
Speaker
but um Yeah, personally, I don't really see I don't see the attraction here. and It might be a value retailer and a value share, but growth is fairly limited. And yeah, I mean, I i kind of agree with the market, honestly, that I wouldn't be um I wouldn't be too keen on them even even at these levels.
Consumer Sentiment and Market Dynamics
00:03:33
Speaker
I find it quite interesting, the B&M and what you're saying there about value retail and the fact that we have been for a few years in a um period, it's been a period of time where people don't want to spend, um they don't want to spend, they can't spend so much, a weaker economy and yet value retailers seem to be struggling more
00:04:00
Speaker
than higher price. I think it'd be quite interesting next week. Dunelm will have a trading update, so we'll see a direct comparison in the household goods market, but much higher quality, um much more expensive than than B and&M. um And I think, I guess it's that concerns about price matter so much more when the, ah the differentiating factor for B&M is is its price point? Yes. I suppose that a direct comparator would be the range. ah I have the range ah
00:04:43
Speaker
fairly near where I live. And personally, I hate the place. But if you want to bargain, it's ah you know it's hard to beat. I wouldn't like to compete against the range. And that's that's what B&M does. Yeah. I think one point maybe with B&M is that if you're looking back over the last five years or so, the whole pandemic period, there was they were a really big winner during that period. They were allowed to stay open all the shops.
00:05:07
Speaker
and they really recorded very strong growth. And now I think that is slowing down. Inevitably, I don't think the growth is going to be as good as it was.
B&M's Expansion Plans
00:05:17
Speaker
And yes, one of the things in the trading statement this week was that like-for-like sales were slightly negative in the run up to Christmas in the quarter up until the end of last year, which was maybe not what people were expecting. But I mean, for me, I'm slightly more positive on it. I think it's it's much more profitable than the big supermarket chains, for instance, and it does generate a lot of cash. And the question mark for me really is whether they can sustain the number of their store opening program, whether they can keep opening stores and maintain the profitability of the ones they have and and of their overall business. But I think at ah current levels, I'm not quite as negative as as when maybe you would be Graham. I'm a little more optimistic, I think. Is that the great plan, the opening of new stores?
00:06:03
Speaker
Yeah, I think the plans for this year is it they have about 770 of the core B&M UK stores, and I think they want to open about 45 more this year, they've said.
Valuation and Growth Potential of B&M and Greggs
00:06:14
Speaker
And then they're also opening brand stores under their other fascias, which is um Heron Foods in the UK, which is a kind of value convenience store, super mini supermarket, and B and&M in France, which is a much smaller a smaller operation, but they are still opening stores at ah and a fairly significant rate, I suppose, um a bit like Greg's in that regard too. Yeah, just to clarify, I'm not negative on this. um I just think it might be priced about right at a PE multiple of eight times.
00:06:49
Speaker
you know If this was trading at 11, 12 times, that would I would say that would be a bit punchy um given you know the headwinds, the level of competition, and ah national insurance, and so on. and But yeah maybe at eight times, I would say this is a fair a fair price for it. What's Greg's valued at the moment? Greg's is significantly higher than that. Greg's is a P ratio of 15, 15 times forecast earnings.
00:07:19
Speaker
um Different growth trajectory to B and&M, um a lot ah well about% compound annual growth rate, but that has come largely from opening new stores and rather than growth within the existing stores, which actually fell in the fourth quarter, which is why the share price was down quite significantly and this week when the company announced its trading up update for the Christmas period. I think Yeah, there is that concern, I guess, with a company that's highly rated as Greg's, whether it can continue to grow to justify that kind of rating, and which is a relatively high rating for what is really a retailer but company in hospitality business, although it does have relatively high margins for company operating operating in in that sector. um So, um yeah, it'll be a interesting to see when it has, there are more Greg's locations than
00:08:17
Speaker
McDonald's, Burger King and KFC locations and you can put together and where it can keep rolling out new stores to. I'm going to come on to that in a bit, but I just wanted to jump in on the number of stores. This is an anecdote from me over Christmas. My wife and I watched something on Netflix called but something to do with Korean fried chicken.
00:08:39
Speaker
um And apparently South Korea has more fried chicken shops than McDonald's has stores worldwide. which i start Yeah, I thought I was staggered by that. But anyway, um Greg's, I think, said that it was still going to continue with this store rollout program, um opening more stores. was it Was there anything else in there about other avenues for them for them growing? Well, the other big and
00:09:10
Speaker
area for the company is product innovation so we see things like the vegans was a draw, that was the big hit from a few years ago. More recently they've had the festive bake um and yeah there's all sorts of of product innovation and actually I read Paul wrote about um Greg's last time we we covered it and and he said that he had been tempted in because he'd seen that on the side of the motorway he'd seen a poster with like a new something new and it was that that tempted him into Greg's and I think that is, I think that's true, I think they're able to do very, very good marketing, they're brilliant at marketing and they're able to do very, very good marketing campaigns around these new products and it's not necessarily the fact that people will then go and just buy those new products but they might go in there looking for those new products and then decide that actually I'm going to get my lunch, I'm going to get my breakfast, I'm going to get my coffee from
00:10:09
Speaker
from Greg's while I'm here. And now I've seen people at Parkrun with Greg's branded running gear. Yeah, so they've got a collaboration with Primark for yeah that that kind of stuff. um it's ah it's It's been popular, it gets the name out there. Yeah, it is it is a it is a popular name.
Greggs' Market Strategy
00:10:29
Speaker
It's eye catching as well. um Do you have a set Greg's order or are you one of the people who goes in to try the innovations?
00:10:39
Speaker
I have a set Greg's order and if it's not there, which on two occasions over Christmas it wasn't, I was very disappointed. It's a very basic order. I get a um ah chicken chicken and bacon baguette and the reason that I love Greg's as much as I do is because that chicken make and bacon baguette is a really good quality. It's not like Pret where it's like 80% mayonnaise. It's a proper, like you get a good amount of chicken in there and It's great and it's so cheap. How cheap? What do you pay for your set? I rarely pay more than five pounds and I am normally getting like sandwich, drink, pastry, maybe maybe some chicken wings. What would you be willing to pay for that as like a top end? Yeah, it's an interesting question. I think it's a question that's going to um
00:11:31
Speaker
impact Greggs more in the coming months. Greggs employ more than 30,000 people, so they are likely to be hit by rising, well, they're all going to be hit by rising national insurance costs. And they said this week, Manchester said this week, that ah they're going to mitigate that and increasing cost, which I think translates to increased price of sandwiches, sausage rolls and things like that. And as a value with such a strong value position in the market, I think that is a potentially potentially nerve-wracking place to be, a similar sort of situation that is facing B and&M. um So I personally am willing to pay slightly more, mainly because my other lunch of choice is M and&S, which we are going to come on to talk about in a bit, which is obviously significantly more expensive.
00:12:19
Speaker
but then um i am ah I work from home. I'm fortunate that my I don't have to spend money on lunch very often. When I do, I do it as a treat. So I am probably not the the kind of customer that Greggs needs to worry about when they're thinking about raising prices. Do they also have scope for cost cutting in terms of, I i know whenever I've been into a Greggs at like service stations, they're always manned.
00:12:47
Speaker
um certainly compared to like the McDonald's and the Burger King's that I see at service stations where all of the ordering is done automated. Yeah, I think that's i think that's really interesting because of the 30,000 items of staff, about 24,500 of them are shot shop workers. and and yeah As you say, there is very little automated ordering in Greg's. I do think that's potentially an area where they can cutting making There can be some cost-cutting. It would be long-term cost-cutting, which would come with an upfront, obviously, see investment in the technology. There's been nothing said about that, but it's ah yeah it's it's certainly an avenue that that the company might have to well might so start exploring. Also one that I think speaks to a a broader problem around the UK's economic situation. i mean Rising national insurance costs, yes, okay, maybe we might be starting to fill the government
00:13:46
Speaker
covers a little bit, which is obviously required. but if it's going to come at a cost of jobs, it's not necessarily going to have the upside that the government needs. Yeah, I know whenever I, it on the tech front, we have a McDonald's just down the road, which we do stop at occasionally. And whenever we go there, they always say, did you order via the app today? They are really, really trying to push the use of their their technology, which is, a McDonald's has had some other problems in the news recently. and like My final, I think, thought on
00:14:19
Speaker
The value retailers that I want to get your collective input on is if I look so top down at the the metrics for Greggs and B and&M, the quality metrics are both relatively similar.
00:14:32
Speaker
um Both of them sell, as we've discussed, good value products in terms of the the price point. They're both looking to grow via store rollout programs. It's been like a real tale of two charts over the last few years. Greg has grown and grown and grown. B and&M very much not the case.
00:14:54
Speaker
There's been a lot of talk over the last ah couple of years with the cost of living crisis about the middle class shopping down. um So people who used to shop at certain stores, shopping at choosing to shop at other stores. Do you think that that's easier for people to do for Greggs than it is for people to shop down at a place like B and&M?
00:15:16
Speaker
I think it could be possibly Greg's has got such terrific marketing and branding and um that that seems to have a really broad appeal anecdotally from people I know and and and surprising people sometimes that you wouldn't necessarily expect. and And then there's the other fact I think that I think food that's ready to eat is often seems to be a much easier sell than than then quite a lot of other things sometimes.
00:15:42
Speaker
um It may also be what they offer. Greg's offering, like like Megan said, you know there's a good there's ah there's a good mix of things that appeal to people at the right time, at the right place. And that's always been Greg's real secret that they're where you want them to be with what you want at at the right time. Whereas B and&M is a place you do have to go to. And perhaps a lot of what they sell isn't quite ah isn't is not for timely consumption in the same way and people might defer it or
00:16:13
Speaker
they might find it on offer at Sainsbury's or little or wherever. So maybe, maybe a little bit, but I think it's partly just timing. The B&M had a stronger phase slightly earlier. Greg's has done very well recently and and now maybe there's a a bit of consolidation for both of them with the writing cost base that they've got to got to address somehow. Yeah, they're very different companies, obviously. B and&M is a variety store.
00:16:38
Speaker
and Greg's is a branded food store where you're getting something that is in some ways unique. ah you know It's its own thing. um It's like going to KFC. you know You're getting a particular type of food that that you that you want. I know um so anecdotally, I'm in Ireland and I've I've been up to Belfast a couple of times in the last few years and every time I do, I have to import Greg's items back to the Republic in my car every time because there's someone here who who who wants Greg's and I'm the only way they can get their fix is by bringing it in the car down the motorway. Which items? we we We've got to know which items.
00:17:30
Speaker
but there's no point asking me because I i don't i don't eat the stuff myself, ah but I know that the people people who do like it, they they really you know they get hooked on it. so
Greggs' Expansion and Competitive Landscape
00:17:41
Speaker
Oh, wait. so i Sorry. I thought you were bringing it back for one person. So you are you are bulk buying Greg's produce and bringing it back in your car boot? Sort of. Yeah. Let's not get into the details, but But it's it's badly needed. So I understand. I thought you were Greg's mule for the whole of the Republic of Ireland. There's a need for Greg's. that you're You're not going to get that for B and&M. Nobody's going to say, oh, oh youre ah you're going to you're going to be up there and you're you know you're going to be near B&M. Get me the such and such. That's never going to happen. So what is are their competitors to Greg's in the Republic of Ireland? Or if Greg's management are listening, have we just identified a ripe new market for you to open more stores?
00:18:25
Speaker
ah No, I don't think there is. you know the um The pasties and the bakes, I think these are more tied with the north of England. you know I think there's a particular that's a particular market there geographically. ah So no, i don't I don't think there is an opportunity, honestly. Gotcha. Shall we move on to Christmas trading updates from the supermarkets?
Supermarket Market Share and Consumer Trends
00:18:52
Speaker
Who wants to kick off?
00:18:54
Speaker
I'm happy to kick off. I just had a quick look at Sainsbury's today and I also covered ah Tesco yesterday ah in the daily stock market report. um Obviously, these are are similar companies. The the most most interesting feature of the Christmas updates, I think, is that both companies are very proud of gaining market share ah And they it seems like they've both been gaining market share for some time. And that is at the expense, as far as I can tell, of Asda and Aldi. ah So there were um you know these ah industry trends, these industry statistics basically say that Asda and Aldi have been losing market share over the last year.
00:19:50
Speaker
while Tesco and Sainsbury's have been gaining it. So it kind of speaks back to what we were saying about and you know the trend of people trading down might be over and arguably people are trading back up again. Although Tesco also said that they were gaining market share from the premium supermarkets as well. I don't think Sainsbury's was as specific as that, but certainly seems like the middle ground is finally experiencing strength after having been you know weak for a number of years before that. So I'm moderately positive positive on both of these stocks. I don't get excited about them, but I think if you're looking for income
00:20:37
Speaker
ah they are definitely candidates. They are, you know, they're standard blue chips, you know, puts you 100 stocks that people buy for dividends. I think it was interesting about both Cetanis, Biz and Tesco, especially with looking at that where they're taking market share is that they both have very good rewards and systems and I mean the Tesla club card in particular that's I mean it's certainly price competitive with with Aldi if you're using your club card and the same I guess the next point um
00:21:10
Speaker
So I suppose that's where they're in a position that they can take market share at both the bottom and the top because they can roll out nice premium products but also offer very competitive prices for those who are regular shoppers. I saw a clip from a YouTuber who and does a lot of analysis of food and nutrition and also the cost of it and he did He compiled a list of all of the prices of all the supermarkets like premium all butter mince pies from 2023 and compared it to 2024. And all of them were around about £2.25 in 2023 and all of them increased by roughly the same amount as about 8% to 2024. Apart from Tesco's, their Tesco finest all butter mince pies,
00:22:03
Speaker
they put that up to £3.50. It was an increase of a whole pound over a £2.50 pack of mince pies. If you weren't paying the club card price, if you were paying the club card price, it was there. All button mince pies went down to £1.75. So undercut all of the other ones by about 50p. Yeah, I mean, if I'm in Tesco and I i forgot the club card, I'm i'm just going home. um I'm not going to do it.
00:22:29
Speaker
Or I'm going to, what I've also noticed is a trend of the budget supermarket. So Lidl and Aldi opening branches in the same location as one of the more sort of middle ground supermarkets. We've got, I live just outside Newport, we've got a big Sainsbury's and a big Tesco's and both of them within the last year or so have had budget chains open literally next door to them as well. So I wonder if that's playing into that.
00:22:57
Speaker
Yeah, I think it makes sense, obviously, to do that because you vast numbers of people will go to both of them. I mean, I think in our house, we use three or four supermarkets quite regularly. So you know people are picking and choosing, aren't they, if if they have the time to visit you know more than one.
00:23:19
Speaker
Megan, you took a look at Marks and Spencer's this week as well, which is definitely one of the more premium supermarkets. Yeah, I did. And but also doing very, very well on the food side, non food side less well. But Marks and Spencer has been and a mixed bag over the last sort of decade, but very, very strong in in the last couple of years, really pushing a turnaround strategy, which has centered around food and And yeah, the the growth in the food in food sales over the Christmas trading period, so this the trading i update this week was specifically about Christmas. It was about 9% growth and year on year, which is which is amazing. And I also think one of the things that jumped out to me was management saying more people are shopping their whole whole shopping basket in M&S, and which I i think
00:24:11
Speaker
in the past was a bit unusual. But I do wonder a little bit if M and&S is one of those companies um which is benefiting from changing consumer demands, more people looking for eat in rather than eat out. and Eating out is is very expensive. It's getting so much more expensive.
00:24:30
Speaker
And people are willing to pay £15 for and the M and&S Gastro Dine-in for two by Tom Carridge, rather than spending £50 on an equivalent meal in a restaurant. um so and So yeah, I think that that's partly partly behind that behind the trend at M&S.
00:24:50
Speaker
um they've got their branding right, they've got their products right. But yeah, market it a little bit spooked by the fact that non-food revenue was and not so impressive. What do you think they've got to do to ignite some more growth in the non-food sector?
M&S and Next's Strategic Focus
00:25:07
Speaker
I mean, it's difficult. And I think this is where M&S becomes not a comparison with the supermarkets, but a comparison with Next, which also had some numbers this week which were uncovered. Next obviously gets it right um and M and&S on the on the clothing, clothing home and beauty I think is what the division is is less impressive. I don't think they've got a very good digital footprint M&S compared to Next. um
00:25:34
Speaker
something that I think management has said they want to work on. and Obviously, a lot of um a lot of shopping is done online. and Now, football was down over the Christmas period on the high street. So, yeah, fewer people literally going into shops to to buy their clothes. So, yeah, really don't know if if you've seen that comparison at all, the the next versus the M&S non-food division.
00:26:00
Speaker
I don't know if you want to cover this, Graham. I think you, I think, I don't think I did look at next. I think it might have been you. I heard there was an argument about which one of you got to cover it. Now, I covered Next, and it was another ah upgrade, as usual, from Next. I should say that I'm a shareholder in Next. I've been for years. and I mean, there wasn't really a huge amount to say there. It was just more of the same, ah not a huge amount of growth, 3.5% growth in full price sales.
00:26:33
Speaker
um So yeah, just more of the same there, small growth, loads of profits, um modest ah you know ah forward guidance. So they're not they're only guiding for another few percent of growth for the the new financial year, but hopefully they will beat that. um And yeah, the formula is working. Brilliant ah online shopping, but online e-commerce model. um So yeah, absolutely ah no complaints there from me. On the e-commerce model, I want to dig into that a little bit because I think
00:27:14
Speaker
what I've noticed and Next doing that I don't think M and&S is doing ah for their online e-commerce operation specifically is buying other brands and or licensing other brands purely through their e-commerce division, which I don't think M&S is doing. I don't think Next sells those other brands through their physical stores either. Is that the case? Yeah. Well, Next has actually been buying up small competitors completely and then plugging them in and So it can it can plug in other brands.
00:27:48
Speaker
without buying them. But you know it's bought Fatface, Jewels, made dot.com, ah Reese, and and others. And it just plugs these in ah and sells them seamlessly online um with without all the you know with a much better cost structure than they had before. So they're profitable at next.
00:28:16
Speaker
So yeah, it has that model that it can just add in new brands very easily and run them profitably. And I'm assuming M&S isn't giving any clues as to to what approach it might be taking to improve its online sales. Is this something that they could do feasibly? There there were comments about, ah mayor it's actually not about online sales, but more and a digital implementation within the supply chain, and which I think is expected to help improve the efficiency.
00:28:45
Speaker
both but in both sides of the business, but it's the clothing side that needs a little bit more support. So yeah, more more digital integration within the company as a whole, which I assume also will mean a better online offering. Online's only about 33% of revenues in the M&S non-food division, which is quite low compared to other retailers.
00:29:11
Speaker
Since we're on next, Megan, do you want to talk about fast retailing as well? Because you had a look at that. Yeah, just
Uniqlo's Growth Strategy
00:29:16
Speaker
quickly. yeah It's a company that I've looked at on and off for the last few years. Always expensive. It's Japanese company owned Uniqlo. That's the biggest brand. It is. Yeah, it's always a ridiculous um price earnings multiple. forward It is at the moment. It's trading on 40 times forecast earnings. But the share price performance, even when it's been on these ridiculous multiples, is just consistently extraordinary. i it's It's very interesting reading it. It's its quite a different sort of almost cultural approach to reporting compared to Western ah companies. Its chief executive was talking a lot in the full year results which actually came out last year about the investment in human development. And I think that's so interesting compared to
00:30:09
Speaker
Western that well fashion retailers which are talking about more digital integration and yeah and as much use of tech as possible. But but at Uniqlo, it's the exact opposite to that. But growing unbelievably quickly, and both in Japan and internationally, the only place it hasn't grown very quickly in the period under review was in China. China as a whole has been quite a challenging market for anyone operating there.
00:30:34
Speaker
and especially retailers, but um I think Uniqlo is a really interesting company. Also something I'm finding really interesting, obviously having written about it today, Friday, and we're getting comments on it saying I like i like the products and I think Uniqlo products seem to really appeal to quite a broad range of people and because they are trendy, they are fashionable as far as I'm aware. um I've got quite a cool younger sister and she said they're quite cool. um and But they also, ah you get to some of the things some of the comments today are they're comfortable, they have pockets ah and and that is
00:31:12
Speaker
Yeah, clearly clearly appealing to to lots of people. Not too expensive, but high quality. I take mild offence at the fact that your your insinuation that the four of us are not the arbiters of cool. um i'm I have some Uniqlo clothing. I'm currently wearing a Uniqlo base layer and it's it's great. It's incredibly comfortable. um On the pockets front, I didn't know that you could get wedding dresses with pockets. I'm going to throw that out there.
00:31:37
Speaker
and I went to help a friend pick out a wedding dress the other week, and I got very excited about the fact that there were wedding dresses with pockets. There you go. um Yeah, it's a really interesting company, and certainly, ah you I know you posted a table of some of the results, and it was incredibly clear, certainly versus a lot of the other companies. Yeah, so well laid out. The numbers, is it's really nice. But yeah, very expensive, and it's a Japanese company listed. It does have shares listed in the US as well, but they are not that easy to get hold of. so um more illustrative than anything else, but it's ah yeah a company that that is worth having a look at.
H&T's Market Position and Pawnbroking Business
00:32:15
Speaker
I want to touch on H and&T as well that reported this week um as the UK's leading porn broker. It's funny, we were in the the webinar on ah Wednesday and
00:32:30
Speaker
and I started talking about H and&T off the cuff when I was asked what to do about investing in gold, getting exposure to gold. um H and&T is the UK's biggest pawnbroker. It's been doing this for for well over 100 years, but the um the growth rate, I think, is really impressive. you know You would think that it would be so mature by this stage.
00:32:57
Speaker
But actually, its pledge book grew by over 25% over the past year. So it's, I mean, it's 10 times the size of Ramstons, which has the ticker rfa um RFX, which is also a coded company and one that we tend to cover in the report. and But H and&T, i I'm not a shareholder currently, but it was one of my biggest holdings for quite a few years. um I eventually sold out because ah Return on capital was kind of weak. so
00:33:31
Speaker
as a i mean as a Effectively, you could think of it as a type of bank, and and it just didn't really get enough sort of quality growth to keep me interested long-term.
00:33:45
Speaker
but I mean I was in it long term but I eventually sold out and over the past five years the shares have really done nothing. ah Like the share price today is about £3.50. You go back ah five years ago it was about £3.50. So the shares have done have done nothing except pay a dividend over this time. and But I am interested in in it now because you know During the past five years, it has actually grown and ah it's now trading at a PE multiple of six and a half times according to the stock report.
00:34:24
Speaker
so you know I was happy enough to be on the sidelines. I've always liked the company, but I think now it might start to look ah look interesting again. the The trading update that came out on Thursday,
00:34:39
Speaker
I mean, there was nothing nothing wrong with it whatsoever. um The only issue is it it it has the national insurance problem that every company with a lot of staff ah is facing.
00:34:54
Speaker
um but It's it's ah estimates are unchanged because with the pledge broke book growing so quickly, it's thought that higher profits from lending is going to offset the and the higher expense from national insurance. So ah yeah, I'm very interested in this one. Part of me regrets not putting it on my watch list or considering it more strongly for my 2025 watch list. But anyway, I've said it now, I like H&T.
00:35:26
Speaker
Megan Rowland, have either of you you ever looked at H and&T as an investment? I have. I um i actually went and visited, I actually don't know if the founder is still, not the founder, the chief executive, can't be the founder. The the chief executive is ah who i who I met, with is still involved. he He was great. I went and met him. He showed me around the head office and one of their shops on the high street. I think it was one of the the earlier ones. and It's a really nice, yeah, nice little business. And and as Graham said, Ramsden's is the listed pawnbroker in the UK. it doesn't It's not really a fair comparison. Ramsden's is reporting numbers next week. And yeah, and H&T is just growing significantly better, larger pledge book, significantly larger pledge book. And yeah, it's ah is a really nice business. And yeah, I haven't looked at it for a while, but when I when i did, it it's ah yeah it's one of
00:36:21
Speaker
one of the good eggs, I think, on on the UK market. I want to briefly go into the whole pledge book thing. This is not a sector I've looked into much at all. And when I saw the phrase pledge book, it took me a while to figure out what was going on there. Can you can you briefly explain how pawnbrokers make money and and why the pledge book is important?
00:36:43
Speaker
Yes, so pawnbroking is one of the most ah responsible or you could say and reasonable forms of of lending when it comes to small amounts at high rates. So over the past few years, payday loans have been cracked down upon and you know There's been a lot of regulatory work done in the in the sector, but pawnbroking has come through really virtually unscathed because the way it works is somebody brings in an item. It could be a piece of jewelry or a watch and they get a loan.
00:37:32
Speaker
ah And one of the most important features is that it doesn't affect their credit rating. Their personal credit rating is not relevant to the loan because the loan is secured on the item. So the company will not lend out the full value of the item in the loan. Now the loan will charge a high rate um So just going off memory, I think it was 9% a month or something when I checked. That was a few years ago. It's a very high rate loan. um But the person who has borrowed it can simply choose to not pay it. And there will be no repercussions back on them, except they won't get the item back. ah The pawnbroker may sell the item, but the pawnbroker may then
00:38:26
Speaker
ah well but Well, they will then have to give back the person any surplus from that sale. so It's a very responsible form of lending, a safe form of lending for the lender and in many ways for the borrower. It's been around for ah over 100 years at this particular company and it's obviously been around for hundreds of years in Europe before that. so and you know It's a good business model.
00:38:54
Speaker
and ah it does charge high rates. so you know With H and&T having a £127 million pound pledge book, you know theyve they're they they can earn massive interest on that. um and I think the risk is pretty low. The only big problem is If the gold price, for example, was to fall by 50% suddenly, then there would be issues. they would you know So pawnbrokers have to be careful about their exposure. And and pawnbrokers can go bust if they and if they aren't careful enough. but But that's the main risk. And what ah on the on the gold front,
00:39:42
Speaker
ah ah You said that in in the webinar we did on Wednesday, I will include a link to the replay in the ah episode description. You said that you were looking at Agente as a way of getting exposure to gold. I wonder if if, and maybe the three of you can can chat about this, what are the the various pros and cons of gold exposure via a pawnbroker versus owning miners, direct exposure via like something like a gold-focused ETF or just buying bullion directly? I mean, for me, I would much rather get exposure to gold indirectly through a business like H and&T or possibly through a miner that's focused on you know um on production and pays dividends and and has a record of of
00:40:27
Speaker
returning value to shareholders because the idea of of investing in gold for me but vesting directly in gold, you're obviously investing in an asset that that it doesn't grow, it doesn't yield anything. You're just speculating that the spot price may rise or fall. so as an investor As an investment, um gaining exposure through a business that will make that should make money from gold, even if the gold price isn't rising, is a much more appealing prospect. So ah certainly H and&T would probably be a good example of something I might consider as a way of of getting exposure to gold, I think.
00:41:07
Speaker
we I think we also wanted to touch on takeovers because there was one you may have
UK Takeovers and Market Implications
00:41:12
Speaker
missed over Christmas. um And then we've had three today. So should we start with one over Christmas?
00:41:20
Speaker
Yeah, so the situation of Christmas is maybe a little bit different to what's happening more broadly in the in the UK market. I think there you go. Those are big topic in the UK at the moment because the UK is cheap and foreign investors are noticing that. So offering premiums, what looked like very large premiums, but actually not particularly big premiums to the underlying value of the equity in a lot of cases. um But over Christmas, a slightly more specific and niche um example of, I mean, I would say AIM being used quite badly. um This is a company that was spun out of another company which and had had its own issues, a company called Pulberg Pharma, which was spun out of HVivo, which used to be hook called OpenOrphan, ah the company's founder and chief executive.
00:42:12
Speaker
who is actually the chairman at Paulberg. He's called Cathal Friel. He is quite a serial um ah moneymaker on AIM. He's an expert in the in the healthcare care division. And I think there are, for me, one too many cases of these sort of small, not making any money, no immediate, ah opportunity to make any money, companies, literally listing on the market for um for the capital and then never really rewarding the shareholders who who support them. And I think now this ah takeover is happening. It's a reverse merger into a now second-listed company where there is a lot more capital available and that's where Poolberg Pharma is going to end up and
00:43:05
Speaker
ah Yeah and aim investors are being somewhat left as a bit of an afterthought in this situation and so yeah I don't I don't love that that is the situation that's revolved around pullback. A lot of the investors were given their shares anyway when the company was spun out of HVVO but yeah it's still it's still I don't think it's a great a great look and I think we need to do more for um companies that are really going to reward the UK investors who back them. But yeah, today, I mean, one announced today actually also in the in the healthcare care space and one that's in our NAPPS portfolio. So Ed was quite excited. It was a bit of an early win for the NAPPS portfolio. Graham, I know you look to Alliance Pharma. Yeah, Alliance Pharma is not a company that
00:43:56
Speaker
that I really ever studied much before but it came up obviously today with with the takeover offer. It was a 40% premium or 41% premium to yesterday's close. so ah pretty a pretty reasonable premium. The buyer is actually the largest shareholder who is eBay advisors ah from the Isle of Man. so They are basically just trying to buy the rest of the company that they don't already own. and so It's not like
00:44:34
Speaker
It's a little bit different to when we get you know the US s or other sort of foreign takeover of a UK stock. This is more like just going private with the largest shareholders saying, we think this company can do better privately and offering to buy out its other you know it's fellow investors. and Slater Investments is on the shareholder list.
00:45:01
Speaker
I presume that D-Bay would not have you know taken this action if they had not already you know asked slater if Slater was going to you know agree to it. so On that basis, I sort of presume that this will go ahead. um Companies trading at nine times earnings, it's had a bit of a patchy few years.
00:45:26
Speaker
so maybe Maybe D-Bay advisors can see that you know it's turned a corner um and that the future is bright. the One sort of slightly disappointing element of it was where D-Bay said that Alliance Pharma needed time away from the public market. They said that the listing was a potential distraction for management.
00:45:52
Speaker
So kind of ah you know criticizing the whole concept of being listed, um i mean Alliance Pharma has a market cap of 330 million pounds today. It wasn't that as high as that yesterday, but you would think that these small caps would have you know There'd be some point to them being listed for the liquidity. and you know i mean I don't get nervous about delisting risk in general unless the market cap is a lot lower than that because you know a lot of 200, 300 million pound companies are listed for the liquidity. so I don't know. i just I thought it was a little bit a little bit of a disappointment the way they criticized the whole concept of being listed on the stock market.
00:46:40
Speaker
ah dbay said that Alliance needed to make certain investments and that they would be better able to make without being in the glare of the public eye so maybe that's true but you know i think overall this is kind of a negative news story because alliance pharma seems like a pretty decent company and and i guess we're losing another decent company to ah take takeover.
00:47:10
Speaker
Yeah. i wonder what i'm Looking at what Debe said, I think one wonder whether the subtext is that they may think about Alliance Pharma returning to the market at some point in the kind of middle future. Because as you say, it does have quite a long and decent record. But um arguably, from a long-term perspective, um I suppose some long-term shareholders will be will be possibly quite a long way down on on the price they paid and it may look like they just it's just being taken out at a relatively cheap valuation during a difficult period so that the private owner can profit from that and return it to the market. At some point I suppose such is life but as you say it seems a little bit disappointing in a way that a company of this size couldn't um couldn't make it work as a public company or didn't want to perhaps. I don't know.
00:48:05
Speaker
And finally, to finish up, ah what was the bit of news that got you most excited this week? What what was your favourite thing to write about? I just, I always like writing about Greg's. I think it's just a ah really really nice business. um So yeah, I think that was, ah having a look at look at that was was probably my um was probably my highlight of the of business week. um Yeah, a a good company. um And hopefully it can continue to grow because I think it's one of one of the good ones that we have on the stock market. And the more we can help keep supporting companies like that, the more I think we can encourage people more people to be excited by the UK markets.
00:48:48
Speaker
Yeah, um I suppose from my point of view, the the H and&T story was exciting to have a company that's over 100 years old in a very mature ah financial service ah kind of sector and growing at 25% in terms of its main product. I think that's ah that's pretty amazing. and I should add as a disclaimer that that wasn't purely economic, excuse me, organic growth. A little bit of that growth, about 6% was from an acquisition that the company made, where they where they're making a higher value loans ah to people who may use them for business purposes. But most of that growth ah was still organic, and I think that's impressive.
00:49:38
Speaker
Yeah, I think one interesting thing for me or that's that's prompted me maybe to think about the market conditions a bit more was discussing whether the outlook for value, whether retail is is changing because of people's changing behavior elsewhere. So, you know, Marks & Spencer's food has been doing very well for a long time.
00:49:58
Speaker
and whether that's benefiting, like Megan suggested, from people who are you know people staying in, um whether there's an implication for B and&M that that and for other value retailers that isn't fully apparent yet, I don't know. But looking at, I've been a fan of B&M for a while, I don't own the shares, but I have been positive about the business. So I think this week has prompted me to to think about it in a little bit more detail than I than i have done for a while. and So that's that's interesting.
00:50:29
Speaker
And that just about brings us to the end of this week's episode. If this is your first time listening, ah welcome. ah We'd love it if you hit the subscribe or follow button wherever you are listening. um That means that new episodes will drop automatically into your feed every Friday afternoon.
00:50:48
Speaker
If you've enjoyed this episode as well, we'd really appreciate you leaving a positive review or rating on your podcast platform of choice. It really helps us. I've been Lawrence, I've been your host for this week. Thank you very much for listening and we'll see you next week.