www.suplc.co.uk
S&U PLC is the United Kingdom's foremost niche consumer and motor finance provider.
Based in Solihull in the West Midlands it has operations throughout the United Kingdom from Edinburgh to London to Grimsby to Falmouth in Cornwall. It provides work for nearly 800 people and is proud to provide 140,000 people throughout the country with their consumer and motor finance requirements.
S & U 's motto is to provide Britain's "foremost consumer and motor finance service for its customers". We continually strive to achieve that ideal and the results are benefiting our customers, our employees and of course our shareholders.
S & U PLC: solid track record and strong dividend policy differentiate S & U from the sub-prime lending
Looking around the vast swathes of the economy particularly that of the bleeding financial sector, you see the scene from a Tarantino film – 3-meter thick ash, pieces of metal frame sticking out of the earth, left over from the plush banks’ offices and eerie silence everywhere.
Given this dire state of financial landscape in 2009 it makes for a pleasant change to see that not all sub-prime lenders are on their skinless knees. While Bank of America has lost gazillions of value and just about avoided going under, for now at least, the West Midlands-based S&U PLC (SUS) is bearing up comparatively well indeed. The £39m-Cap listed in London has been writing up subprime loans since 1975 and believe it or not, required no public funds to survive last year or this. May be American borrowers were more broke than their Yorkshire counterparts to start with, or could it be there is more to it?
800 personnel-strong S&U operates out of fifteen locations up and down the country (brand name LoansAtHome4U) writing small loans (£250 - £2000) to sub-prime customers (non-standard, higher risk). This is done by agents visiting customers in their homes to write as well as to collect loans ensuring for a tighter lender-borrower relationship. And although some 27% of the loan book is never collected SUS are turning in a profit and paying a dividend!
The Company’s agents are doing a great job maintaining acceptable debtor quality; S&U pays commission to agents on the loans collected, not just written, and this ensures that an agent has some skin in the game, so to speak. The business is drummed up by direct marketing as well as existing customer recommendations.
While Home Loan division is bringing home some 65% of the group’s profits, Advantage Finance Ltd, S&U’s car financing business delivers the rest. Advantage writes loans of around £5,000 to customers who have been denied access to mainstream finance facilities, but can demonstrate ability and intent to pay. Bespoke credit scoring facility integrated with Experian provides for efficiency and workable debtor quality; the revenue advanced by 10% in 2008 and the profit jumped 15%. The business is mainly coming in from the brokers.
S&U’s capital structure is made up of both debt and equity. The £31.3m worth of debt (£15.3m of this being current) and £43.8m worth of equity provide for a Debt to Capital Ratio of 41.7%. The weighted average cost of the capital employed by the company is 7.3%.
By the end of financial 2008 the revenue stood at £46.2m (£45.9m in previous reporting period). The revenue growth in last four years has been 2.8% annually; this makes for a mature small company. And while the revenues went up by a fraction, the net income is flat on last year and has been declining at 1.9% annually over last four years. Gross and Net income margins have also receded by a fraction over last reporting period. The negative margin trend is also evident over last four years. EPS by end of financial 2008 was 50.1 pence (50.8 pence the previous year). This gives investors a Return on Capital of 7.8% and while there are minimal excess returns the company is clearly not destroying shareholder value.
Total Assets have gone up by just over £2m to £80m. Total Liabilities have increased by under £1m and reached £36.3m. Liquidity is very good - Current Ratio is 2.6. The only entry on the Balance Sheet with a question mark is the figure for “other creditors”, this has almost doubled from £472k to £858k.
Cash Flow from Operating Activities has come in at £3.9m (down on previous reporting period by 15.9%). The decrease is attributable to lower operating income and higher taxation.
S&U paid a dividend for financial 2008 of 32 pence a share, yielding 10.7%. Dividend is covered 1.6 times.
The share price has gone all over the place in the last year - down to £2.43 from the high of £4.10 and now back up to £3.20. If you consider the fact that S&U pays out in dividends over 60% of net income, valuing the company using Dividend Discount Model is appropriate. On the conservative estimate of 2% annual dividend growth the company’s intrinsic value is around £53m or £4.57 a share.
The current share price of this steady operator appears too pessimistic based on company’s fundamentals. Given the current economic climate the amount of business will likely increase coming out of recession, based on historical experience of Provident Financial (home credit market leader). S&U opened five new branches in last financial year so any uplift in business volume will be multiplied.
