With a 5.2% yield and a P/E ratio of 8.2, this FTSE share appears to be like like good worth to me!

Regardless of spending a lot of my spare time contemplating which FTSE shares to purchase, I lately made a little bit of a mistake. Don’t inform anybody, however I’ve all the time believed that Ramsdens Holdings (LSE:RFX) is the corporate that operates the “world well-known” Harry Ramsden’s fish and chip eating places. And lately I made a decision to do a little analysis with a view to writing an article in regards to the inventory.

My thoughts was buzzing with all types of puns that I may use — ‘shareholders have taken a little bit of a battering’ was my favorite. However then, a lot to my embarrassment, I found that Ramsdens Holdings makes most of its cash from pawnbroking.

No, not prawnbroking!

And that the corporate working the chippies is privately owned.

Nonetheless, after stumbling throughout the agency accidentally, and after reviewing its accounts and performing some digging into the business through which it operates, the inventory seems to me to be one thing of a hidden gem.

Monetary efficiency

It describes itself as a “diversified, monetary companies supplier and retailer” and operates 167 shops throughout the UK.

Like different retailers it suffered throughout the pandemic. But it surely’s bounced again strongly and continues to develop.

Most of its income come from pawnbroking-type actions. These embody loans secured on treasured property in addition to the shopping for and promoting of watches and jewelry. The corporate additionally sells international forex.

A query of ethics

To be sincere, I used to be initially a bit of uncomfortable with some features of the enterprise. I used to be conflicted as as to whether pawnbroking is benefiting from individuals’s misfortune. Or genuinely searching for to assist those that are unable to entry finance via extra typical means.

However its actions are regulated by the Monetary Conduct Authority. And its existence may assist stop individuals resorting to mortgage sharks so, on steadiness, I wouldn’t rule out investing.

Nonetheless, regardless of it rising quickly, there are dangers.

Like all excessive avenue retailer, the corporate should deal with the double menace of excessive mounted prices and on-line competitors.

One other draw back is that in frequent with different small-cap shares, there’s a giant distinction between the shopping for and promoting costs (the unfold) of its inventory. Primarily based on its closing share worth on 31 Might, if I used to be to purchase £10,000 of shares after which instantly promote them, I’d lose £488.

For long-term traders this shouldn’t actually be a problem nevertheless it’s irritating that the corporate’s share worth must improve by practically 5% for me to interrupt even.

Good worth

However the firm’s shares seem attractively valued.

For the 12 months ended 30 September 2023 (FY23), it declared a dividend of 10.4p. Primarily based on its present share worth, this suggests a yield of 5.2%. That is comfortably greater than lots of its bigger friends. In fact, dividends are by no means assured.

For FY23, it reported earnings per share of 24.5p, which means its inventory at the moment trades on a a number of of 8.2 instances historic earnings.

As a rule of thumb, retailers are inclined to have a price-to-earnings ratio of at the very least 12. Making use of this to the corporate’s FY23 earnings would counsel a 46% premium to its present share worth.

In March, it introduced that it had negotiated a bigger credit score facility on higher phrases and reported “robust” buying and selling.

For these causes, I’m going to maintain it on my watchlist for once I subsequent have some spare money.