Today, I’m looking at small-cap tiddler Ramsdens Holdings (LSE: RFX), which has this morning released its FY2017 full year results. If you haven’t heard of it, don’t worry, the company only listed on the AIM market of the London Stock Exchange in February and its market cap is just £38m. However when it comes to small-cap investing, good things often comes in small packages, so let’s take a look at Ramsdens and examine the investment case.
Simple business model
Headquartered in Middlesbrough, Ramsdens is a diversified financial services provider and retailer, operating across four core areas: foreign currency exchange, pawnbroking loans, precious metals buying and selling, and retailing of second hand and new jewellery. The group operates from 127 stores within the UK and served over 700,000 customers across its four divisions last financial year.
After a management buyout in 2014, Ramsdens’ strategy has focused on growing profits through investment in its foreign exchange and jewellery retail segments, acquiring pawnbroking businesses, and optimising cash generation, with the aim of creating a well-balanced, resilient business, generating growth organically and through acquisitions.
Management believes the company’s strengths lie in its strong balance sheet and cash generation capabilities, experienced management team and clear growth strategy, strong branch estate and diversified portfolio of products and services, and high-repeat customer base.
So far so good, the company’s business model appears easy to understand, diversified, and should be relatively recession-proof. Let’s look at the numbers.
Financials
Ramsdens’ FY2017 full year results released this morning, look pretty good in my opinion. Revenue for the full year came in at £34.5m, growth of 15% on last year. Profit before tax rose 73% to £4m and adjusted basic earnings per share (EPS) rose 49% to 10.1p. The company had cash and cash equivalents of £11.9m at year end, up from £11m last year.
Furthermore, the company declared a maiden full-year dividend of 1.3p. Management stated that it intends to “adopt a progressive dividend policy” and with city analysts forecasting a high payout of 6.5p for FY2018, there could be dividend growth potential going forward.
Chief Executive Peter Kenyon was upbeat about the results, stating: “FY2017 was a transformational year for Ramsdens with the Group delivering good growth across all four of its key business segments and achieving the significant milestone of its admission to AIM. We have made a strong start to the early part of the current year across all core segments. We are about to enter our seasonally important summer period and are confident of making further progress.“
Attractive valuation
So the numbers look impressive and management sounds confident about the future, but what about the valuation?
Well, despite a formidable 45% rise in the share price since floating four months ago, I reckon shares in Ramsdens still offer value. That’s because, on earnings of 10.1p, the stock’s trailing P/E ratio is just 12.4, falling to 10.7 on analyst’s FY2018 earnings estimates of 11.7p. A trailing PEG ratio of 0.21, also suggests the stock is trading cheaply.
Investors should bear in mind that small-caps of this size can be volatile, so the investment thesis is not without risks. However, overall, I’m impressed by the company’s business model and strong performance, and in my view, Ramsdens could offer potential for both capital growth and dividend growth from here.
