Last updated 13th March 2024

Note: The owner of StockyWocky has a significant position in Ramsdens and is bullish on their future prospects. This is just information, not investing advice.

Introduction

Ramsdens is a diversified financial services provider and retailer. In a nutshell they operate a pawnbroking business, a foreign currency exchange business, a gold buying business and a jewellery retail business. The majority of their business is conducted from their store estate, predominantly in the North of England and Scotland, with some of their business being conducted online. They also offer a travel card which is a new addition from 2023.

The website for their currency, pawnbroking and gold business can be found here: https://www.ramsdensforcash.co.uk

The website for their jewellery retail business can be found here: https://www.ramsdensjewellery.co.uk

Revenue and Returns

I don’t pay as much attention to return on capital employed, because some companies can be growing fast but have negative returns on capital. However, for a relatively established and stable business which isn’t going through a brutal capital investment cycle which kills earnings in the short term, the ROCE metric can be useful to observe how much juice the company is able to squeeze out of what it owns.

Revenue

Revenue growth is key. Ultimately a company that is not growing its sales will struggle to grow its profitability.

Operating margin

This is a very useful metric, it is basically the profit margin made in business operations but before finance costs. The exact number on a particular year isn’t important, it will depend highly on the business in question and how they operate (for example software platforms tend to have high operating margins, and supermarkets very low operating margins). What is important is the trend over time – it gives us an insight into whether the business is becoming more or less efficient.

Book value

Data from ADVFN

Nice upward trend in equity book value here which is what I’m looking for.

Let’s take a look at how expensive this growing equity has been over time in the market.

Given we don’t have 2024 data I have plugged some conservative dummy data in for 2024:

Year	Equity	Shares outstanding	Sales
2019	30.91	30.84	46.79
2020	35.56	30.84	76.94
2021	36.14	31.39	40.68
2022	41.84	31.64	66.1
2023	48.17	31.72	83.81
2024	50	31.8	88

Valuation metrics look good. We can see the bump in sales during the late-covid period which has returned back to more normal levels now.

On valuation grounds this is approaching similar levels to peak COVID in 2020…

Balance sheet

Cash has remained pretty static over the past 5 years. I would like to see this increase slightly in line with the book value.

Interesting things can be seen with the quick ratio (aka acid test – a conservative measure of liquidity). Generally speaking scores greater than 1 are healthy. H&T, Ramsdens main competitor, are off the charts with a quick ratio of 8.26 in their 2022 results. Compare this with Ramsdens paltry 1.54 by comparison. But all may not be what meets the eye initially here – for a very high liquidity score could be a sign that H&T doesn’t have a great approach of deploying capital for productive purposes. Cash and short term liquid assets tend not produce much of a return. A good business should have liquidity, but not so much that it hints at an inability to deploy capital productively.

Now H&T in 2022 had £12.23m on their balance sheet – a figure that has no doubt increased since then, but recent news is that they have bought an upmarket Essex-based pawnbroking business for £11m – this is a big acquisition, and a risky one too, since it is more upmarket than their normal offering.

Ramsdens and H&T appear to expand their store estate at roughly the same rate.

Quality and growth insight

Trustpilot is an incredibly useful resource for gaining insight into a company which is consumer facing, especially if that company uses Trustpilot reviews as part of their business operations, as more data will flow to Trustpilot and we can get a better idea of the company.

We can learn three things primarily from Trustpilot:

1. How good is the customer experience?
2. How many sales is the company making?
3. How does this compare with competitors?

Reviews for RamsdensCurrency – so pawnbroking, travel money and gold buying:

Reviews for the currency business look steady. Ignore the March 2024 dip as this is incomplete data. Coming into the new year there was a sharp increase in February back to April 2023 levels, which I would expect to see continue. A good result would be to see this surpass last year’s Summer.

Onto the online Jewellery Business:

Strong Christmas period as expected. Business looks fairly steady

Cash durability

I noted from the recent call with management that they don’t see any trends towards people using less cash when on holiday. To paraphrase the CEO: “Cash is used by those going on holiday as a budgeting tool”.

Ramsdens is also well placed to offer cash free alternatives through their own brand travel card offering which is fairly new: https://www.ramsdenscurrency.co.uk/travel-card

In conclusion

I have started tracking the inventory levels on the website as well as more fine grained trustpilot scores, but I haven’t been doing this long enough to draw meaningful conclusions, here are the charts anyway:

Number of reviews on Trustpilot:

The latter chart on inventory levels will be particularly helpful as it will give a better insight into the sales rates of the jewellery business.

Conclusion

So, it’s clear that the company exhibits a solid financial foundation, marked by steady revenue growth, a healthy operating margin, and a robust balance sheet. The upward trend in equity book value, alongside a prudent approach to liquidity, positions Ramsdens favourably in the competitive landscape, particularly when juxtaposed with its main competitor, H&T.

Ramsdens valuation looks attractive based on the historical price to book value, trading significantly below pre-covid levels. The world economy is on shakier foundations post-COVID, and a company like Ramsdens should be one of the few that benefit during a downturn, so if anything I believe the price book value should be greater than before covid. I expect to see a significant re-rating in the future.

Ramsdens leans heavily into the use of Trustpilot reviews, this encourages customers to shop with them and helps boost their reputation and brand awareness. Their response rate is quic and average review score extremely high, and higher than H&T, suggesting that they take quality customer service extremely seriously.

Looking ahead, Ramsdens appears well-equipped to navigate the challenges and opportunities of the market. The company’s ability to adapt to changing consumer needs, coupled with its strategic expansion efforts, bodes well for its future. Investors and stakeholders should keep a close eye on Ramsdens, as its blend of financial health, customer satisfaction, and strategic foresight make it a noteworthy entity in its domain.

The CEO in a recent update, even though they are growing the business, have suggested that their approach is actually extremely conservative. He was steering the company when they went into a crisis before with the collapse of the gold price in 2014 and were over-exposed. I like companies where the management have been through and survived a crisis, it makes it much less likely to happen again in the future!

In conclusion, Ramsdens stands out as a robust player, with its comprehensive approach to business operations, financial stability, and customer engagement laying the groundwork for continued success. As we watch Ramsdens move forward, it will be interesting to see how the company leverages its strengths to capitalise on future opportunities, ensuring its position as a leader in its field.

Addendum: Note on Ramsdens Latest Trading Update 13th March 2024

The trading update can be found here: https://www.ramsdensplc.com/documents/240311-RamsdensHoldingsplc-AGM-Trading-Update.pdf 

A trading update for the financial year up to 29 February 2024 was recently shared. Key highlights from the update include:

• Foreign Currency Gross Profit: There’s been an increase of approximately 3% year on year in this segment. This growth, especially ahead of the crucial summer trading period, indicates positive momentum and a strong consumer demand for Ramsdens’ foreign currency exchange services.
• Pawnbroking Loan Book Growth: The pawnbroking segment has shown growth, with the loan book expanding by £0.4 million over the period, reaching a total of £10.7 million.
• Jewellery Retail Revenue: While the revenue from jewellery retail remained broadly flat compared to the previous year, a strategic shift towards higher margin products like second-hand and diamond jewellery (and away from premium watches) has led to a gross profit increase of about 5% in this segment.
• Precious Metals: The gross profit from the purchase of precious metals saw a significant increase of approximately 20% from the previous year. This surge is attributed to growing consumer awareness and a relatively high gold price, highlighting Ramsdens’ ability to capitalise on market conditions.
• Strategic Expansion: Ramsdens has continued to expand its physical presence, opening two new stores in February (in Romford and Burnley) and five new stores in total during the period. As of 29 February 2024, Ramsdens operates 167 stores, including two franchised stores.
• Financial Flexibility: The securing of a new £15 million revolving credit facility (RCF) with the Bank of Scotland PLC, on more favourable terms than the previous £10 million RCF with Virgin Money, enhances Ramsdens’ financial flexibility and supports its growth strategy.

This trading update reaffirms Ramsdens’ strong market position and also highlights its potential for continued growth and profitability.

Keywords: Ramsdens, RFX, Investing, UK Shares