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S & U well-placed to benefit from upturn in the used car market

Trends within the business have seen the group become more cash generative
Ford Fiesta
The used car market has been hit by consumer uncertainty but not as hard as the new car market

S & U PLC (LON:SUS), the specialist motor finance and bridging loan company, expects full-year results to be broadly in line with expectations.

The lender said recent months had seen a slowdown in the motor industry from the highs of recent years but the impact on the used car market, where S & U’s Advantage division operates, has been less marked.

READ: S & U says demand for its products remains strong

All the same, the company considered it prudent to tighten its underwriting discipline, and this, in combination with a recent increase in competitive pressure, means that new loan arrangements in the year to date were down 7% year-on-year at 18,710, which is still the second highest number of loan arrangements in the company’s history “by a comfortable margin”.

Both Advantage's customer base and current net receivables continue to grow and, while at a slower rate than previously anticipated, they are both at record levels, S & U said.

The former now stands at 59,000 and the latter at £267mln. The quality of this book remains high, as evidenced by the year to date risk-adjusted yield against average monthly receivables of 25.0% against 25.4% in July, the company observed.

Year-to-date monthly collections are 18% up on last year at just under £115mln and the company is beginning to see signs of the improvement in new customer quality on which its underwriting policy is focussed.

In summary, the company believes its car loan arm is well placed to benefit from any pick-up in the used car market when consumer confidence returns.

READ S & U to ramp-up the size of the loan book at Aspen Bridging subsidiary

Moving on to the property bridging finance arm, Aspen Bridging, the unit’s loan book has now reached £18mln of net receivables, double the level it was a year earlier.

The unit continues to maintain margins and maintain a good repayments profile.

"At a time of considerable political and economic uncertainty in the UK, I am pleased to say that S & U retains a very strong financial base, growing expertise and experience and a prudent business philosophy which will enable us to make the most of the opportunities presented by the motor and property markets as 2019 unfolds," said Anthony Coombs, the chairman of S & U.

"In a fast-changing world these enormous strengths underpin our ability to continue to provide steady, sustainable growth for our shareholders,” he added.

Peel Hunt picked up on a slower rate of growth, with net receivables up 1% since the half-year stage.

For fiscal 2019, the broker downgraded its profit before tax and earnings per share forecasts by 2% to £35mln and 236.5p respectively, putting it slightly below the consensus of £35.3mln and 236.8p.

For the followng year, the broker has cut its forecasts by 8% to £40.1mln and 274.7p.

“Whilst growth has not been as solid as previous periods, it is an output of more conservative underwriting, which is a sensible approach in the current economic environment,” the broker said, as it stuck with its ‘add’ recommendation and cut its price target to 2,650p.

S & U shares currently trade at 2,100p, down 50p on the day.

Shore Capital rates the shares a ‘hold’ and has a price target of 2,140p.

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