Millions of pounds’ worth of gold in Albemarle & Bond’s safes plunged through the floor as the pawnbroker’s Croydon store burnt during the London riots in August 2011.
It was prophetic. The group’s shares plummeted from 125p to 34p last week as it admitted that the plunging gold price had toppled earnings and it was in danger of breaching agreements with its banks.
Midweek, it then revealed that plans cooked up over four months to secure emergency funding from shareholders had gone up in flames. Without the backing of EZCORP – the US pawnbroking chain that holds close to 30 per cent of the company – the £35m rescue rights issue at 50p a share could not happen.
On Thursday, the Financial Conduct Authority, the new steely-eyed regulator of payday loans, outlined a rougher, tougher rule book for providers of short-term consumer credit. It was bad timing and has not added to the sector’s allure. Albemarle & Bond’s shares slid further, before recovering a little ground on Friday.
Now it has to renegotiate the terms on its £51m of net debt with its banks. It is hard not to relish the irony of a moneylender cut down by the failings that have brought low so many of its customers.
Albemarle & Bond is a case study of how an over-optimistic management team assumed the recession would bring it nothing but good, doubling its bet on the precious metal at its peak and borrowing heavily to expand.
While the gold price rose, the money piled up and Albemarle & Bond built a 233-store chain. But the competition also moved in. Moneylenders have shifted in droves from Britain’s back alleys to the high street, quick-cash kiosks have sprung up everywhere and US pawnbrokers have flocked to the UK to take advantage of its comparatively less regulated and less saturated short-term consumer credit market.
Even Tesco, Britain’s biggest supermarket, has a cash-for-gold service promising knockout prices. As the glister came off gold, customers wanting to sell the metal have faded away and, with them, Albemarle & Bond’s profits.
Albemarle & Bond was not alone in overestimating the benefits of recession. RSM Tenon, an insolvency practitioner that bet on corporate failures rising, was put into administration and swallowed by a rival.
H&T, Albemarle & Bond’s closest rival, also gambled on gold and expanded heavily. Even as the gold price peaked in mid-2011 and Albemarle & Bond’s Croydon store was ablaze, H&T was opening its 150th store a few yards away. Its profits on trading gold in the first half of 2013 fell a third, and its shares have fallen 50 per cent this year. However, H&T has debt of £28.5m.
After the London riots, it took Albemarle & Bond five months to lift its safes from the ashes of its Croydon store. Miraculously, most of the valuables inside were intact. It is unlikely to be so lucky again. The stock market often views industry investors, such as EZCORP, with large holdings as a positive, perhaps assuming they will act as a backstop at the last resort. Albemarle & Bond’s travails show how wrong that can be.
So a Chinese lubricant manufacturer is next in the queue to join the Alternative Investment Market. China Rerun Chemical group has sent out an expansive press release on its intention to float, listing the types of oil and antifreeze it produces. It even tells us Rerun has for years sponsored and won an outdoor racing event along a frozen river on the Chinese/Russian border in Heilongjiang, also known as Black Dragon River province. Hooray.
But it is hard to make an investment case from the few financial details. There is just one line saying that £1m raised will be used to fund growth. There is nothing on what Xinghe Wu and his brother Zhongzhi Zhao, executive chairman and executive director, will sell of their family’s 84 per cent stake.
Investors are supposed to be heartened by the presence on the four-person board of Jane Zhu, aged 61 and former head of Asia Pacific for the London Stock Exchange, and Nicholas Lyth, a Mandarin-speaking accountant.
But Rerun’s advisers should prepare for disappointment. Brokers say that London-based and institutional investors are giving foreign companies a wide berth. Stocking boards with the great, the good and the financially literate is no longer enough to convince investors that they will be looked after. Too often such non-executive directors have still proved powerless against controlling shareholders and executives.
For all Mrs Zhu’s credentials, her worth to investors is not so much in what she has done, but in what she will do for minority investors in the future.