S&U PLC (LSE:SUS), the motor and property finance lender, says the turnaround it flagged over the summer is now firmly taking shape, with profit at the end of its third quarter running ahead of budget and demand strengthening at its core car finance arm.
The group’s net receivables (the loans it has written but not yet been repaid) have climbed to about £491 million, up from £447 million a year earlier. Management describes these balances as the “lifeblood” of future profit because they determine how much interest income the business can earn.
The company has been steadily rebuilding since the Financial Conduct Authority lifted its Skilled Person Review, known as a “section 166”, at Advantage, its motor finance subsidiary, in April.
A Supreme Court ruling in August on commission disclosure has also steadied nerves in the wider industry. According to the Finance and Leasing Association, used car finance volumes rose 6% in September after a small decline over the preceding months.
Even so, the company said both Advantage and its property lender, Aspen, had held up well despite a “monumentally mishandled” budget that it blames for denting consumer confidence and stalling housing activity.
Advantage Finance
Advantage has seen a marked pick-up in business over the past four months under chief executive Karl Werner. Monthly loan agreements are averaging 2,500, worth more than £25 million, compared with 7,121 deals in the first half.
Applications hit a record 869,000 in the third quarter, pushing receivables to roughly £318 million, a 14% rise on the previous quarter.
A stronger flow of new business has allowed Advantage to improve its interest margins, particularly among lower-risk customers, while tightening its credit scoring and affordability checks.
Collection rates reached 93.4% in November, the highest on record, and the company said measures of how quickly overdue borrowers catch up with payments are at their best in two years.
The firm reiterated that it has never used discretionary commission arrangements, the structure at the heart of the FCA’s proposed Commission Redress scheme.
It estimates only 2.4% of its customers could fall within scope of the draft rules. Advantage has submitted a detailed response to the consultation with the Finance and Leasing Association and expects any impact on trading to be “minimal”.
Aspen Bridging
Aspen, which provides short-term property loans including bridging and buy-to-let finance, has continued to expand its book despite a sluggish housing market. Net receivables have risen to about £173 million from £148 million at the half-year stage.
Repayments reached £47 million in the period, while year-to-date repayments of £160 million remain ahead of budget. Advances totalled £75 million, helped by a mix of smaller bridging deals and larger buy-to-let loans averaging more than £1.3 million.
Margins remain in line with budget. Only 16 of Aspen’s 240 loans are beyond term, with progress being made on the handful of longer-running cases.
Although the company is not expecting a dramatic revival in the housing market even if interest rates fall, it said Aspen is on course for a solid second half and “another good profit” for the year.
Funding and outlook
Stronger trading has pushed group borrowings up to £241 million from £180 million at the half-year. S&U has £280 million of existing funding capacity, but said it is working on a project to secure larger and more flexible medium-term facilities to support expansion over the next three years.
Chairman Anthony Coombs said: “Recent months have undoubtedly confirmed that S&U has regained its ‘Va Va Voom’. … With both Advantage and Aspen on the right track, we have every confidence in the good rewards for shareholders we anticipate in the years to come.”