Peel Hunt has turned more bullish on S&U PLC (LSE:SUS), upgrading the motor finance group from 'add' to 'buy' and setting a target price of 2,000p. That's about 18% above where the shares now sit.
The broker reckons the recovery story is gaining traction as the company leaves its regulatory troubles behind.
S&U, which lends to used-car buyers through its Advantage division and provides short-term property loans via Aspen, posted a 22% rise in interim profits to £15.6 million.
The improvement reflects a sharp rebound at Advantage, which has emerged from the Financial Conduct Authority’s section 166 review (an in-depth check on lending practices) with a clean bill of health.
First-half profits at the division climbed to £11 million as advances hit £71 million and repayment rates moved back towards 90%, close to pre-pandemic norms.
Loan impairments, essentially expected losses on bad debts, fell to £8 million, a £10 million improvement on last year.
Aspen also chipped in with record profits of £5 million, up 47% year on year, even as higher interest rates cooled the property market. Its loan book rose to £148 million, held in check only by strong repayments.
Borrowings have been trimmed to £180 million, and management is reviewing future funding options as growth continues.
Peel expects full-year profits of £31 million and earnings per share of 191p, seeing value in a business trading on just eight times forecast earnings and below book value.
After a rough ride with the regulator, S&U looks to be back in gear, and Peel thinks investors should buckle up for the next leg.
The shares were up 2% at 1,745p.