Competitive marketplace pushes margin down.
Pawnbroker H&T Group (LSE: HAT), which posted a 27% drop in half-time profits, blamed rising cost and disappointing gold trading for its woes.
The company said: "Year-on-year profit before tax has fallen due to the costs of the store expansion programme and competitive pressure on gold purchasing margins."
H&T said interim profits came in at £7.5m compared to £10.3m last time. It has raised its interim dividend by 1% to 3.8p per share.
The UK's leading pawnbroker, which claimed it made "super-normal" profits between 2010 and 2011, said this was thanks to its first-mover advantage into the high street for gold purchasing and from rising gold prices. However, it said the market was now more competitive, which resulted in a drop in margin from 33% to 20%.
The company added: "The Board has always expressed its view that the high level of profits from gold purchasing has been a short-term opportunity rather than a core earnings stream."
In terms of its main pawnbroking business, which accounts for around three-quarters of profits, H&T said the value of pledges from customers increased by 14% to £47m. The growth in the pledge book has been driven by the increase in the number of outlets that has risen from 146 to 75 in 12 months.
Shares in H&T, which were unchanged at 293p, value the business at £107m or around nine times prospective earnings. The yield, which is a respectable 4%, is covered almost three times by profits.
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> David does not own shares in H&T Group.