African Battery Metals Share Discussion Threads

[quepassa] 08/3/2013 11:32

The sector as a whole is doomed in my view.

Too much competition.
Gold buying is ex-growth.
Heavy cost of expanding on the high street.
On-line providers will kill the High Street as they have in almost every other sector.
People prefer loans over the smart phone than face to face.
You can now pledge-by-post.


Just don't see a rosy future for High Street pawn-broking. It enjoyed a few good years in the sunshine but in my view will soon fast disappear back into the shadows from where it came.

ALL IMO. DYOR.
QP

[markrogers88] 08/3/2013 00:44

Bench - That's interesting, it's another fine result for what appears to be a company doing quite well. But the absence of a long-term record of data in front of me makes it difficult to assess the company's track record or returns, which only go back to 2003.

I would also note the rough period in the company's per-share earnings between 2003-2007, although the record since 2007 has been attractive. I'm not fully apprised of the details there, so don't know how the company performed on a whole between 1897 and the present, or during that 2003-2007 period. There might be details there that I'm not aware of, such as acquisitions etc. The 80%+ decline for the year 2005 would worry me though, unless there was a particularly good reason. You probably know a lot more about their operations than myself!


ABM is simply a little more transparent to consider from an investment standpoint, in terms of understanding how well run their business has been historically. While I just don't know about HAT (it could be much better or worse for all I know), the details for ABM are listed plainly in the form of a 20+ year record - per-share earnings and turnover growth is evident, usually of a considerable degree, in almost every year between 1992 and 2012.

It's on that basis that ABM becomes an interesting scenario rather than a comparison across the sector. HAT could be the best pawnbroker in England or the worst, I don't know, and probably can't form a decent judgement without more data. I hope it proves to be a successful investment, but it'd be founded on slightly different kinds of reasons to the present situation at ABM.

[bench2] 07/3/2013 22:18

Mark... worth reading the HAT statement today , as for your worry about HAT short record of returns , the company was founded in 1897 , whilst ABM was started in Bristol in 1983 .

[markrogers88] 28/2/2013 13:52

Bench + Scotches -

The pledge book method could be a useful guideline for measuring the pawnbroking portions of the business, thanks for providing that.

Ultimately though, the value of any business (from US Steel to a local corner shop) will depend on its earning power. That is, the current normal earnings, with a multiplier depending on the long-term prospects for growth.

HAT looks like an interesting company, but it has a relatively short record of returns. That makes it slightly more difficult to compare their efficiency or the returns they can generate on their assets in a variety of market conditions.

In any case where lending or insuring is involved, much depends on the judgment and management of the specific company. For instance, you can get very responsible and intelligent insurers/banks, and others that behave differently. ABM has delivered a very long track record of shareholder returns, so it's somewhat more visible in that sense, at least in terms of the traditional business. For all I know, HAT could offer a more superior return in the future - but having that certainty in the long-term track record is important for investors, so long as the industry economics remain similar to the past.

It's generally accepted that a multiple of 7-10 offers a "no growth premium" on an enterprise. In other words, 10-14% in earnings yield is a "fair price" with risks factored in, for a company with no prospects of earnings appreciation over time. When interest rates are low, the accepted yield falls to the 10% (P/E 10) level, which it's safe to say is in effect now for no-growth companies.

The investor here really needs to evaluate how well ABM can turn the temporary boost to their earnings from Gold Buying into a platform for their traditional business. It boils down to whether ten years from now, the normal earning power of the business will be the same as today, far lower than here, or far higher than here. The track record shows the excellent economics of the industry, and of ABM's business in the last 20-odd years - it wouldn't be unreasonable to expect that to eventually continue, once earnings find themselves at a normal (non Gold Buying inflated) level.

Very interesting situation. Good luck to all.

[bench2] 27/2/2013 14:49

Using Finncap formula gives the following:
ABM Pledge Book £38.1m x 4 = £152.4m less debt £50.2m = £102.2m Mkt Cap is £105.2m

HAT Pledge Book £51.6m x 4 = £206.4m less debt £38.1m = £168.3m Mkt Cap is £104.2m

[scotches] 12/2/2013 16:16

The broker Finncap produced research in October 2010 by which it suggested a way to value pawnbrokers was pledge book x 4, less debt. They may well have more recent thoughts but that is all that I can see online at the moment. Although it is a couple of years old it is still worth a look.

The articles can still be accessed from here

Finncap have 1.7m shares in ABM according to FT data

Although both HAT and ABM have online loan facilities surely the nature of pawnbroking is you physically take your item of value to be assessed - are you really going to post it off?

If by selling gold there is less likely to be items for pledge and hence recurring PSC income then HAT keep mentioning how their pledge book keeps growing and breaking new records - over 50m at last count.

[grahamite2] 12/2/2013 15:49

Thanks to all for a lot of interesting and thoughtful contributions.

[markrogers88] 12/2/2013 15:17

Just taking a quick look at the results.

This remains one of the most interesting stocks to follow on the market for my taste, whether you're neutral, bullish or bearish. It's not often you see a management team recognising its golden goose comes with an expiry date, and that hay needed to be made while the sun was shining, to provide capital for the long-term pawnbroking business (which also happens to have a very good operational track record). It makes the company very interesting to value.

I can't help but be reminded of the Al Pacino in the film Carlito's Way. With the pawnbroking business being the quiet car rental business in the Caribbean, that needed to be funded by one last reluctant dash into the lurid but lucrative nightclub underworld (cash for gold). Shareholders need to hope that unlike Carlito, ABM can make a more smooth transition between the two!

The gold operation went from providing profits of £1m to roughly £21m within a few short years, from which earnings were retained and the company's overall capital base increased. Management have been reallocating the capital towards their traditional business, and have used short-lease "pop up" stores in their gold operation to allow for a more smooth transition (which seemingly is underway, with all 43 now apparently offering diversified lending services).

Lower cash generation from the gold business has seen the company take on more debt, I think in the form of long term borrowings, which may be a concern.

I think the valuation question has been the extent to which revenue and attributable profit from the gold business declines, and whether the increased capital in the traditional business can generate returns to replace those declining gold earnings over time. The company sees gold-buying "providing us with a significant long term revenue stream on a reducing basis", although an investor should rightly be concerned at the sharp like-for-like reduction in today's results.

If the gold business has entered a terminal decline of a rapid nature, to what level will overall profits fall by say 2015 (if that is the point at which gold declines are offset by profit increases in the enlarged pawnbroking businesses, I don't know if it will be sooner or later than this)? And from that point of normalised base earnings, at what rate will EPS be growing?

I have some confidence in the traditional pawnbroking business, but if an investor at this stage does not feel returns on the capital reinvested in those stores will be adequate, then he may not find the current £115m purchase price attractive. The track record is perhaps enough to suggest that in the long run, the increased capital in that business could be deployed attractively.

It's difficult to think in such terms, but if an investor was confident about the long run potential of the traditional business, then they might simply view the cash for gold portion of the business since 2009 as a temporary windfall, supplying a non-organic opportunity for the successful pawnbroking business to expand. The near-term track record (gross profit) reads:

£8.8m, £11.3m, £13.2m, £19.9m, £25.8m, £28.2m, £31.5m, £34.8m, and looks set for another modest increase this year. An investor might say that this is a business worth incrementally adding more capital towards, and that funding it through the gold business might (in the long run) be good news for the company.

From a valuation perspective though, I may be wrong, but I think it boils down to these two challenging questions -

How far do the earnings from the gold business fall from their 2012 peak, do they continue to decline or do they reach an acceptable no-growth base level?

What returns can investors expect on the capital reinvested in the traditional business - how long will it take for per-share earnings from pawnbroking to exceed those being earned in gold-buying today?

And then perhaps finally, maybe a question about how the company fares financially in the interim, if it is taking on more long-term debt to patch over shortcomings in the gold business. A few questions might be asked in the interim period about the excellent dividend record of the company. The fate of the pop-up stores will be interesting, but I have no insight into how effectively they can diversify. No unusual insight into the jewelry retail market either, doesn't seem to be a growth area.


In summary, I hold no position in the company, but I'm enjoying tracking A&B's progress as a business. I wish everyone the best of luck involved, and apologies for cluttering the board with my thoughts, they're just my personal take on the evaluation of the business. I still think that an investor confident in ABM's long term traditional business should do well over time, if the above challenges are tackled favourably, considering the current market valuation (and proposed dividend yield, all risks considered).

[bench2] 12/2/2013 14:11

Despite the slim chance of a full bid for ABM by EZCorp I still prefer HAT if I want to hold any pawnbroker . My preferred route of playing the unbanked sector is still via S&U and Prov Financial ... no retail shops to worry about .

[eggbaconandbubble] 12/2/2013 12:33

Solid 6.5% yield here. Better return and much less hassle that a buy-to-let. Plus a good opportunity for capital appreciation when the company have a rethink on how to further develope their business model.
Needs a bit of a whizzkid brought in......from EZ Corp???

[crystalblue] 12/2/2013 11:02

Looks cheap to me. Excellent fundamentals on a low pe and good business model. This will look just fine at £3 in two to three years with gold @850/oz when World sanity has returned.

See this as a long term hold income & cap share. Acquired a thousand for the bottom drawer.

[quepassa] 12/2/2013 09:36

Stock price down by 10% after results as at 9.30am.

Doesn't surprise me. Figures look quite bleak in my view.

They have shot themselves in their own feet, the pawn-broking fraternity. By tempting their customer base to sell gold, they have deprived themselves of a large pool of goods which are readily pledge-able for traditional future pawn-broking business.

Personally, I don't like what I see. Diversification into so many different areas and asset classes and loan types at the same is, in my view and experience, normally a recipe for big problems ahead.

I don't see much about on-line business expansion.

Some of the figures are worrying.

In my opinion, not encouraging.

ALL IMO. DYOR.

QP

[markrogers88] 28/1/2013 20:41

Don't often post on individual stock boards but appreciate the well-reasoned discussion here, both on the positive and negative cases for the business.

I've had ABM on my watchlist for a while now during this recent malaise, partly out of curiosity, also for comparison with CCVU. I hold no position and probably couldn't find room to do so, but as the price has fallen, I've become more interested.

The share price has now halved since mid-2011, a time when optimism for both AIM stocks and gold were particularly high. By most conventional measures the price wasn't unduly high at that 2011 peak, but a lot has changed in the market's assumptions since 2011.

I think we could mostly agree that business performance itself has been far better than the market value would suggest since that peak, but rather a future slowdown in the gold-buying business and deemed competition from the likes of Wonga have emerged as a serious threat to future performance, and these forward-looking difficulties have severely dampened the market's attitude towards the stock.

At around £95m, the company is supported by around £52m in tangible assets, or £80m in overall book value. ADVFN makes the net working capital to be around £80m. I mention the numbers just for reference in comparing to market value, as a sort of starting point, perhaps to underpin prices on the downside. The company has retained and accumulated a decent amount of money from it's "golden years" so to speak, if the figures are accurate.

Does ABM have any chance of achieving anything like the previous returns on equity within the business, keeping in mind a large chunk of its earning power may now be diminished, and that shareholder equity has expanded considerably? What are the long term average ROI prospects for the new stores being opened, do they compare to the pre-gold years? How rapidly can we expect earnings to decline in the gold-buying business if we conservatively believed it's now peaked, and what is the threat to earnings in the personal loans business from low-cost rivals?

ABM had a very good, reliable business in the 90s and 2000s, which rapidly expanded in the gold boom and recession. A look at the historical figures show an extraordinary record of growth since the 1990s, rivaling some of the best retailing operations in the UK for consistency. The difficulty is relating the extent to which ABM's turnover, per share earnings and operating ratios will revert back to pre-boom levels, and the growth in the traditional business after that.

If you believe the traditional business is a sure to grow slowly on a small scale, but that the loans/gold business will disintegrate overnight, then you might expect earnings to dip considerably for a few years before slowly climbing back as the old business expands to fill the gap. On that basis, you might find an earnings yield of 13% (reducing first to 8-10% say, before climbing higher) ie a multiple of 7 to be quite tolerable, although this largely depends on your expectations of the decline in the other businesses. Obviously if one felt that the company was going back to earning 13p per share overnight and staying there, an eventual multiple of 15 (6.5%) might not be so attractive, so you must make your own conservative assumptions.

If you believe that the business faces rapid, terminal decline, of course, no price is attractive enough to pay. But the growth record of ABM suggests a few things that should heighten the company's credibility in the eyes of an investor, even if you believe in a "hard landing" for the company's current "golden goose".

Evaluating the long term earnings prospects for the business holds the key to arriving at an earnings multiple to satisfy investors with a healthy tolerance for investment risk. While I hold no position, the current earnings multiple of around 7 reflects a fairly harsh view of future prospects, and there's a degree to which short-term sentiment is hurting the price. This may be an interesting opportunity for a long-term investor to tuck away stock in a company with an exceptional track record of EPS and revenue growth, even if current earnings are overstated.

[quepassa] 10/1/2013 11:13

But the cost of the new shops is enormous. Not just the initial outlay but the ongoing rent/salaries/business rates etc.

The smart money is online. The likes of Wonga and all the rest. If now Tesco are doing postal gold buying, that leaves less for ABM.

The competition on the high street through over-expansion by so many providers is extreme. Looks like an unsustainable business model to me.

If they are shop-based and expanding on the high street when the business is migrating on-line, it is not an auspicious sign in my view. Just look how many retail chains have had severe difficulties in the recent past.

Good luck to all. But personally, I think this sector has gone ex-growth and the recent lucrative high-street gold-buying boom for the likes of ABM is history.

ALL IMO. DYOR.

QP

[scotches] 10/1/2013 10:38

The shares first hit £2 in April 2006 before the gold boom even happened. The market was happy enough to value it at £2 on the underlying pawnbroking business.

Now the company estate is twice as big and its still at £2. The estate was rolled out "for free" on the gold boom. If that hadn't happened they would have expanded more slowly and with debt.

Strip out the gold profits and there is still an underlying profitable business. The company makes the point that newer shops require a few years to contribute to profits.

Will people still require short term finance they cannot get from banks - yes.

Of course there can always be issues where pi are the last to know - but assuming no such nasties at £2 it looks well worth buying or adding.

[quepassa] 10/1/2013 07:32

I was in a big Tesco's yesterday ( yuk).

Alongside all the other leaflets at the check-out, I saw a leaflet that Tesco have now jumped on the gold-buying bandwagon,

www.tescogoldexchange.com/index.aspx?cmpid=PPC/Brand

You ring them up or enter your details online and they send you a FREE secure envelope etc. etc. etc.

They also give you Tesco Club points!

This is why I think the High Street gold-buying boom is way past its peak and that volumes are unsustainable.

If Tesco - with all their gigantic retail pulling power and innumerable supermarkets- have now jumped on the band-wagon, this must in my view be terrible news for competitors such as ABM for their gold buying activities.

The Tesco Gold Exchange service would appear to be a white-label service administered by their partners, Ramsdens who would appear to be the largest independent pawnbrokers in the Uk with branches through the North East.

www.ramsdensforcash.co.uk/corporate/aboutus/

For all I know, other supermarkets are also offering this service. But Tesco getting involved is not positive for other players who have witnessed good profits from this retail gold-buying activity in the last few years.

ALL IMO. DYOR.

QP

[foxman14] 09/1/2013 09:56

Mmmm just ran my eye over these and have come to the same conclusion as Maiken, the growth in the pledge book over the last 12 months is the stand out negative.
So despite the yield and historically low p/e I won't be investing!

[eggbaconandbubble] 09/1/2013 08:48

Brando, Coming out of recession is when for example a lot of people in the building trades etc get contracts & jobs they need to short term finance. Your assumption is incorrect.

[quepassa] 09/1/2013 08:22

Graph looking dire.

ALL IMO. DYOR.

QP

[brando69] 08/1/2013 20:06

i take it as yet another sign that we're emerging from recession when the pawnbrokers start to go into decline

[philo124] 08/1/2013 19:43

ABM was always previously seen as more conservatively run.

[scotches] 08/1/2013 11:49

Over on the HAT board it had frequently been asked why did ABM command a much higher rating when they looked very similar companies. It doesn't now. Unless there is some unknown negative ABM could actually be deemed more attractive now in view of the extra yield.


I can only guess the knocks suffered by ezcorp means the likelihood of an outright bid has evaporated and with it the premium pricing enjoyed by ABM shares.

[maiken] 08/1/2013 11:30

The factor that finally decided me against a sizeable investment was the news that the pledge book had grown 5.3% by oct 12 over Oct 11.
Given the near doubling of the number of outlets over the last 3 yrs that struck me as a very poor level of growth.
The truth is,much as I WANTED this to be a buying opportunity,I just don't know.

[philo124] 07/1/2013 17:03

Thanks all; looked today several times but didn't buy.