H&T surprises City as pawnbroking proves a profitable business

The surplus should exceed the upper end of market expectations of 26 million after consumers increasingly turned to the firm's H&T pawnbroking and Gold Bar jewellery buying outlets.

Commercial director Steve Fenerty admitted that the economic downturn had raised the profile of the business but said the growth was mainly down to opening stores and the rising gold price, which increased by a third over the year.

He added: "The rising price of gold has helped people realise the value of some of their jewellery and has helped raise our profit margins. The market has been underserved for a very long time and we were expanding before the recession hit."

The pawnbroking business saw record lending levels in 2010 driven by an increase in the average loan and by opening further stores.

The group's pledge book, which reflects the loans it makes to customers backed by the goods they leave as deposits, grew from 37.3m at the end of June to a record 39.5m at the end of December. Like-for-like sales of goods that were not reclaimed by their owners, such as cameras and musical instruments, were flat in the year, despite the snow in December.

H&T opened 13 outlets in 2010, bringing the total to 135 H&T pawnbroking stores and 45 Gold Bar outlets, which are mainly in shopping malls.

Fenerty said: "It's been a very good year for the business, which has given us the resources to open more stores."

Tesco recently announced its move into pawnbroking but Fenerty said Britain's biggest retailer was unlikely to pose a threat to H&T because it offers a postal service rather than an on-the-spot valuation.

Andrew Wade, an analyst at Numis, described H&T as "a genuine long-term growth story".