S & U Plc (LON:SUS) is demonstrating continued momentum in the post-Brexit environment, broker Shore Capital said after the motor finance specialist's trading update.
That makes it all the stranger that the shares have drifted almost 7% lower in the last six months, “in stark contrast to the rally in share prices that we have seen more recently across the broader financial services sector,” Shore said.
In a trading update covering the period from 8 December to the end of January, the group said it had traded in line with market expectations.
Cash collections by Advantage Finance, the motor finance unit, were up 31% year-on-year.
Transaction numbers and loan advances were also comfortably ahead of the year earlier period.
Advantage achieved 20,000 new transactions in a single year for the first time, beating the previous record by nearly 5,000 deals. Shore had pencilled in a figure of 20,500 for new transactions.
Advantage now has a record 43,000 live customers, up from slightly less than 42,000 at the time of December trading statement, and on a par with Shore's bizarrely precise prediction of 43,323.
Shore notes that the number of live customers is up by around one-third year-on-year.
“As a result, we now expect the year end receivables number to come in between £193mln-£194mln (Shore £195mln) versus a prior year comparative of £145mln. We note that there is no specific guidance on the impairment-to-revenue ratio, albeit collections are up 31% year-on-year (broadly in line with loan book growth) and loan quality is said to remain good,” Shore said.
S & U finished its financial year, which runs to the end of January, with borrowings of £49mln.
The group's loan facility runs as high as £85mln, so there is still plenty of headroom, and Shore expects additional facilities to be raised as and when needed to fund future growth.
Confidence in current and future trading has encouraged the board to bump up the second dividend to 28p, versus Shore's forecast of 29.5p, from 23p the year before. Added to the first dividend, the aggregate dividend therefore rises to 52p from 43p the previous year and 36p the year before that.
“Guidance remains for a full year pay-out of around 50% of earnings and hence we do not expect to change our full year forecast of c85p,” Shore said.
S & U's Aspen bridging finance operation has now received all necessary regulatory approvals, and is open for business.
Aspen Bridging will be targeting the residential market, providing secure property-backed bridging loans.
“Following this update we expect to leave our forecasts for the current financial year broadly unchanged. Note that we have yet to reflect the bridging finance opportunity in our model but, given that this is only a pilot, we expect the impact on our near-term estimates to be fairly minimal,” Shore said.
For the year just ended Shore is forecasting adjusted pre-tax profit of £25.6mln, rising to £31.4mln this year and £36.1mln next year.
Those numbers equate to adjusted diluted earnings per share of 169.8p, 210.1p and 244.1p, respectively.
Based on those forecasts, S & U trades on a multiple of fiscal 2016/7's earnings of just 12.7, and the multiple drops even more, to 10.2, based on Shore's forecasts.
With a good dividend yield of around 3.9%, Shore reckons the shares are worth buying.
“This has opened up an excellent buying opportunity, in our view, with significant upside to our last published fair value estimate of 2,765p (which we expect to leave broadly unchanged),” Shore said.
S & U shares were trading at around 2,238p in mid-morning trade, up 3.9%.