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S & U powers on despite slowing UK economy

Demand for the group's products and the quality of our businesses is reflected in a further £8.5mln investment in the first quarter, taking group borrowing to £113.5mln
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The second-hand car market is holding up better than the new car market

Finance provider S & U Plc (LON:SUS) said loan applications at its motor finance business, Advantage Finance, have reached record levels.

In a statement released ahead of the company’s annual general meeting (AGM), S & U said loan applications are now topping 80,000 a month, of which around a quarter are accepted and around one-tenth are transacted.

READ: S & U says used car market strong as profits hit new record

In the period since the beginning of February, Advantage's net receivables book has grown to £258mln, which comprises more than 56,000 customers, an increase of 21% on last year.

There has been a slight increase in the rolling 12-months impairment rate to 25.8% from 24.6% at the end of 2017, but the lender said this is still comfortably below the average for the previous ten years of 26.4%.

New customer quality and early repayment performance continues to improve and S & U’s expectation is that this will lead to a reduction in impairment to revenue in due course.

April's monthly collections increased by 22% to £11.4mln compared to the same month last year.

Meanwhile, the company’s fledgeling bridging finance business, Aspen Bridging, has seen its net receivables book increase to £14mln from £11mln at the end of 2017.

“Aspen's current profitability and growing reputation amongst its broker partners bodes well for a successful future,” the company’s AGM statement said.

"Despite a slowing UK economy, the value used car and residential markets in which we operate remain strong and resilient. Our continuing focus on customer selection and excellent service gives us great confidence for sustainable future growth," said Anthony Coombs, S & U’s chairman.

Shore Capital said new customer quality and early repayment performance is improving, which management anticipates will lead to the impairment ratio improving in due course.

“This would be a better outcome than currently factored into our forecasts, which assume a gentle rise (2019F: 27.5%, 2020F: 28.0%, 2021F: 28.5%),” the broker said.

“Inevitably an increased focus on credit quality would be expected to have some impact on lending growth, although it should be said that the group transaction volumes during the period were consistent with the prior year while applications are at record levels, so the impact has been mainly to slow growth rather than catalyse a reversal. As a consequence, the loan book increased to £258mln (up 3% year to date) with customer numbers now over 56,000 (versus 54,479 at the year-end). This is tracking slightly below our full year estimate for loan book growth of 14% to £286mln,” Shore revealed.

As for the Aspen Bridging business, Shore noted that S & U’s management appears increasingly confident in this product and the broker expects it to be taken to full roll-out when the pilot completes in the second half of this year.

“We re-iterate our neutral stance and fair value of 2,500p (9% downside). While the group continues to make good progress the shares have performed very well in recent months and are now looking relatively fully valued in our view,” the broker concluded.

Shares in S & U were unchanged at 2,760p in early dealings.

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"S&U continues to demonstrate its historic ability to produce excellent results and strong, sustainable growth," said chairman Anthony Coombs.

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