I’d buy this ‘reopening’ stock on today’s news

This ‘reopening’ stock has just increased its shareholder dividend and has a positive outlook for trading as the country emerges from the pandemic.

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Today’s full-year results report from H&T (LSE: HAT) contains good news for shareholders. The directors of the pawnbroking company increased the total dividend for 2020 by just under 81% to 8.5p per share.

With the share price near 292p, the yield is near 3.6%. And City analysts expect a further increase of around 6% in the current trading year. Meanwhile, the business looks well-financed. No borrowings mar the balance sheet other than lease liabilities. And there’s a net cash pile worth around £14m, even after off-setting lease liabilities.

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Why this is a reopening stock worth considering

I reckon the directors’ decision about dividends speaks volumes about how well the business fared through the pandemic. And it suggests the potential for better trading ahead as the Covid crisis fades. The success of the UK’s vaccination programme makes me eager to run the calculator over so-called ‘reopening’ stocks such as H&T. But the stock has recovered quite a bit from its lows last spring. So there may be less potential for share-price gains from where it is today.

Some of today’s numbers are grim. Compared to 2019, the pledge book declined by just over 33%. And the personal loan book plunged by almost 65%, with personal revenue, less impairment, dropping by 25%. Those performance outcomes drove down diluted earnings per share by almost 27%.

Chief executive Chris Gillespie said the company supported its pawnbroking customers by freezing interest while stores were closed. H&T operates from 253 stores, so the operation was a big casualty of the lockdowns. In some cases, the firm offered customers payment deferral arrangements if it helped them.

And during the interruption to normal business, H&T worked on the further digitalisation of its operations “to improve choice and flexibility.” In November 2020, the company launched an enhanced retail e-commerce website.

Robust trading at year-end

Gillespie reckons the 2020 trading period ended “robustly”. And the business benefited from a high gold price. However, looking ahead, he said market conditions are still challenging, but the firm is well placed to benefit from business recovery as lockdowns lift.

H&T strikes me as a decent long-term hold to benefit from the ongoing growth potential of the business. However, the stock isn’t particularly cheap right now. The days of Covid crash bargains are probably behind us. So I’m not expecting market outperformance from this share. But the forward-looking earnings multiple for 2021 is running just below 11, which I see as fair.

However, the business has suffered from volatile earnings in the past. And one potential negative is that buoyant gold prices may lose their lustre. And the price of gold could appear as a negative in future results reports, rather than a positive as in today’s.

Another risk is that the business appears to have a large element of cyclicality. If its traditional customers are doing well in an economic boom, for example, they might have less need for the company’s services. Nevertheless, I’m prepared to accept the risks and buy some of the shares today to hold for the long term.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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