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

Despite spending much of my spare time considering which FTSE shares to buy, I recently made a bit of a mistake. Don’t tell anyone, but I’ve always believed that Ramsdens Holdings (LSE:RFX) is the company that operates the “world famous” Harry Ramsden’s fish and chip restaurants. And recently I decided to do some research with a view to writing an article about the stock.

My mind was buzzing with all sorts of puns that I could use — ‘shareholders have taken a bit of a battering’ was my favourite. But then, much to my embarrassment, I discovered that Ramsdens Holdings makes most of its money from pawnbroking.

No, not prawnbroking!

And that the company operating the chippies is privately owned.

However, after stumbling across the firm by accident, and after reviewing its accounts and doing some digging into the industry in which it operates, the stock appears to me to be something of a hidden gem.

Financial performance

It describes itself as a “diversified, financial services provider and retailer” and operates 167 stores across the UK.

Like other retailers it suffered during the pandemic. But it’s bounced back strongly and continues to grow.

Most of its revenue come from pawnbroking-type activities. These include loans secured on precious assets as well as the buying and selling of watches and jewellery. The company also sells foreign currency.

A question of ethics

To be honest, I was initially a little uncomfortable with some aspects of the business. I was conflicted as to whether pawnbroking is taking advantage of people’s misfortune. Or genuinely seeking to help those who are unable to access finance through more conventional means.

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But its activities are regulated by the Financial Conduct Authority. And its existence could help prevent people resorting to loan sharks so, on balance, I wouldn’t rule out investing.

However, despite it growing rapidly, there are risks.

Like any high street retailer, the company must cope with the double threat of high fixed costs and online competition.

Another downside is that in common with other small-cap shares, there’s a big difference between the buying and selling prices (the spread) of its stock. Based on its closing share price on 31 May, if I was to buy £10,000 of shares and then immediately sell them, I would lose £488.

For long-term investors this shouldn’t really be an issue but it’s frustrating that the company’s share price would have to increase by nearly 5% for me to break even.

Good value

But the company’s shares appear attractively valued.

For the year ended 30 September 2023 (FY23), it declared a dividend of 10.4p. Based on its current share price, this implies a yield of 5.2%. This is comfortably higher than many of its larger peers. Of course, dividends are never guaranteed.

For FY23, it reported earnings per share of 24.5p, meaning its stock currently trades on a multiple of 8.2 times historic profits.

As a rule of thumb, retailers tend to have a price-to-earnings ratio of at least 12. Applying this to the company’s FY23 earnings would suggest a 46% premium to its current share price.

In March, it announced that it had negotiated a larger credit facility on better terms and reported “strong” trading.

For these reasons, I’m going to keep it on my watchlist for when I next have some spare cash.

The post With a 5.2% yield and a P/E ratio of 8.2, this FTSE share looks like good value to me! appeared first on The Motley Fool UK.

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James Beard has no position in any of the shares 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.

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