H&T's booming trade points to growing consumer squeeze
A trading update from pawnbroker H&T (HAT)comes as further evidence that the cost-of-living crisis is starting to bite UK households hard.
The company said that at its 30 June half-year end, its pawnbroking pledge book – the loans made to customers against ‘pledged’ items such as jewellery, watches and handbags – had grown 74% from a year earlier to £84.2m, and 26% from the £66.9m reported at its December year end.
It said that pledge lending remains “at record levels” and that lending volume is currently over 40% above pre-pandemic level, with no change in average loan sizes, loan to value ratios and redemption rates. Most loans are less than £400.
The company also said that it was seeing higher gold and retail purchasing – possibly reflecting increased nervousness about investment markets and higher demand for ‘hard’, inflation-proof assets - and that the return of international travel had seen foreign exchange volumes more than double.
But while households may be embarking on their first foreign trips for several years, one wonders if they’re pawning the family silver to do so. H&T has alluded as such before; “Offering foreign currency and other products broadens the appeal of the Group's stores and creates cross-selling opportunities” it said in its last full year results.
Certainly, the growth of H&T’s pledge book reflects growing evidence that household finances are being severely stretched. According to poverty charity the Joseph Rowntree Foundation, 1.3m households have borrowed money to pay bills this year, a figure which the charity says could soon top 2m. It noted that with inflation at 9% families are spending around an extra £120 per month on energy, £90 on transport including petrol and £65 on childcare.
According to the Scottish Widows Household Finance index, that rise in living costs has prompted the fastest decline in household savings for nine years, and the fastest reduction in cash availability since mid-2013. Its index of financial well-being fell to 38.5 at the end of April 2022, amongst the lowest readings on record.
Meanwhile, new research from think-tank The Resolution Foundation has shown that UK has had one of the slowest rates of wage growth in Europe over the last 15 years, putting massive pressure on household spending power, particularly among lower income groups. “Britain has experienced a toxic combination of both low growth and persistently high-income inequality, and this has led to some groups being particularly exposed to the cost-of-living crisis,” it said.
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Biting inflation is likely to mean demand for H&T’s services is likely to remain elevated for some time yet, and the withdrawal from unsecured high-cost short term lending – with redress paid to some customers – removes a problematic cloud from over the business. Its turnover and pre-tax profits are expected to climb 24% and 58%, respectively, this year, yet the shares trade on a forecast PE ratio of just 10.
HAT is one of several listed companies that’s set to benefit from an economic downturn, included( ) and ( ) which both specialise in corporate insolvency.
While the Scottish Widows Household Finance index also shows that business activity and attitudes towards job security continued to rise from pandemic lows, the rising threat of recession could see that change in its next survey.
According to Begbies Traynor’s latest Red Flag research, the number of companies in distress is rising fast now that most Covid support schemes have been withdrawn. It found that at 1,891 the number of companies in critical financial distress had jumped by a fifth to 1,891, and the number of County Court Judgements - a leading indicator of future insolvencies - was up 157% to 22,552 in the quarter compared with a year ago, including the highest number in a single month for five years in March.
“The effects of increasing costs are now starting to take their toll on businesses and consumers alike. For the first time in more than a decade, inflation is the prime concern for businesses...This could mean that companies which have just been surviving, being kept alive only by government support, finally succumb to the inevitable,” said its chief executive Ric Traynor.
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