Pawnbrokers in trouble as gold price fallsl Shares in H&T, which is the biggest pawnbroker in the UK with more than 190 shops, fell by almost a quarter in one day

Pawnbrokers in trouble as gold price falls

The challenges facing pawnbrokers in Britain due to the tumbling gold price and regulatory pressure has been laid bare after H&T Group reported a slide in revenues and profits.

Shares in H&T, which is the biggest pawnbroker in the UK, fell by almost a quarter after it warned of difficult trading conditions

By Graham Ruddick

5:55PM BST 12 Aug 2013

The sterling gold price has fallen 25pc and pawnbrokers are facing increased competition following a wave of openings since the financial crisis. H&T, which has more than 190 shops, said this had led to “difficult” trading in the first half of 2013, with revenues down 23pc and pre-tax profits almost halving from £7.5m to £4.6m. Shares in H&T, which is the biggest pawnbroker in the UK, slid by 38½, or 23pc, to 132p following the update. Andrew Wade, analyst at Numis. said: “Aside from the gold price, there are much more fundamental shifts taking place in pawnbroking which are challenging the industry – over the last few years, we have seen the supply-demand dynamic change beyond all recognition.“Supply has doubled since 2010, while demand has faltered as gold purchasing has removed many hundreds of million pounds of gold from circulation. As a result, we would not be surprised if volumes in established stores were running 10pc to 20pc down.”

On top of the economic and financial challenges, the Office of Fair Trading has reported the payday loan sector to the Competition Commission for it to investigate.

John Nichols, chief executive of H&T, said a “degree of consolidation or rationalisation” is likely to take place in the pawnbroking industry.

He added: “In an environment of increased competition, regulatory pressures and lower gold purchasing volumes, the dynamics of the high-street alternative credit market are changing.

“In the last five years, operators have dramatically expanded footprints under the separately identifiable business models of cheque cashing, pawnbroking and buy-back.

“As a result of this increased competition and other market pressures, a diluted customer and asset base has encouraged the beginnings of a cross over in business models.”

H&T Falls as Gold Decline Strikes Pawn-Shop Profit: London Mover

By Eshe Nelson – Aug 12, 2013

H&T Group, a U.K. pawnbroker, fell to the lowest price since its initial public offering in 2006 after plummeting gold prices hurt trading and the company reduced its payday loan offerings amid regulatory pressure.

The price of gold, which has slumped about 21 percent this year, will contribute to pretax profit in the second half that will be “materially below” that of the first six months, the Sutton, England-based company said today in a statement. Pretax earnings fell 39 percent in the first half to 4.6 million pounds ($7.1 million).

The pawnbroker is also revising its loan products as the U.K. Office of Fair Trading tries to tighten regulation of short-term loans at high interest rates, on concern lenders are targeting people with poor credit histories and failing to clarify the full costs. The OFT referred its investigation to the Competition Commission in June.

H&T fell as much as 17 percent to 142 pence, the lowest since May 2006, and the biggest drop among stocks on London’s Alternative Investment Market. The shares traded at that price at 11:37 a.m. in London, extending the decline this year to 49 percent and valuing H&T at 52 million pounds ($81 million).

“The volatility of gold buying will weigh on the results as long as the gold price remains depressed,” Andrew Watson, an analyst at N+1 Singer Ltd, wrote in a note to investors. Watson, who had a buy recommendation on the shares, placed his rating under review.

Foreign Exchange

H&T has started new initiatives that will “weaken short-term profitability but with the goal of improving long-term customer retention,” Chief Executive Officer John Nichols said in the statement. H&T extended foreign exchange throughout the business, started a loan store that targets the Asian community, and is testing a buy-back service for high-end electronics.

Albemarle & Bond Holdings Plc, a British pawnbroking competitor, fell as much as 6.4 percent to the lowest intraday price since April 23, and was down 4.3 percent at 139 pence. The company said in April that fiscal-year profit would be “materially” below analysts’ estimates because of an accelerating decline in profit in the gold-buying unit.

To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net