It’s always good when a company on my watchlist beats market estimates, and even more so after I have just initiated coverage. That’s the case with Ramsdens Holdings (RFX:169p), a diversified and fast-growing financial services company that joined London’s junior market earlier this year. I was pretty impressed by the investment case when I covered the maiden results, so I suggested buying the shares at 132p, placing a target price of 180p ('A jewel in the north', 12 June 2017).
I had good reason to be bullish because earnings momentum skewed the investment risk to the upside: house broker Liberum Capital had upgraded its pre-tax profit and EPS estimates by 13 per cent on the back of a pre-close trading update in April. In the event, Ramsdens exceeded those forecasts by a few percentage points, reporting a 73 per cent rise in pre-tax profit to £4m to produce adjusted EPS of 10.1p on revenues up 15 per cent to £34.5m in the 12 months to end-March 2017.
A key driver has been Ramsdens' foreign currency arm, which exchanged £408m-worth of currency with more than 600,000 retail customers to underpin an 18 per cent increase in the division’s gross profit last year, to £9m. The segment accounted for 37 per cent of the company's gross profits of £24.3m, and there was every reason to expect the growth to continue, as has proved to be the case. Trading activity has been buoyant over the summer, so much so that analyst Justin Bates at broking house Liberum Capital believes Ramsdens' foreign currency arm’s gross profits will rise by 20 per cent to £10.8m in the 12 months to end-March 2018, or £300,000 more than forecast when I initiated coverage. And this isn’t the only driver behind Liberum’s latest eye-catching 22 per cent pre-tax profit and earnings upgrade for this year, and the 19 per cent hike in its expectations for the 2018-19 financial year.