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S & U defies tough car market as motor finance customers continue to rise

Snapshot

  • Motor finance customers hit record levels
  • Aspen’s bridging loan book builds
  • Peel Hunt gives 'add' rating on the shares
S&U

Quick facts: S & U PLC

Price: 1600 GBX

LSE:SUS
Market: LSE
Market Cap: £193.92 m
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S & U's prospects for the year ahead are good. From a sound financial base, S & U is very well placed to take advantage of this in our habitually responsible and sustainable way

Anthony Coombs, chairman

What S & U owns

S & U PLC (LON:SUS) is a UK lender specialised in motor finance and property bridging.

The company, which is the holding company for Advantage Finance and Aspen Finance, was founded in 1938 and floated on the London Stock Exchange in 1961.
 

What S&U does

The company’s Advantage Finance business supplies finance facilities to UK motor dealers to provide loans to customers.

Focused on the used car market, it offers loans of up to £15,000.

Advantage Finance, which launched in 1999, now has more than 150,000 customers.

Aspen Bridging is the property bridging arm of the group. The business, founded in 2017, offers short-term unregulated loans against commercial and residential properties. It supplies up to £1mln per deal with an average loan of £375,000. 
 

How it's doing

The used car market in which Advantage exclusively operates remains in robust health, S & U said in February.

In contrast to the new car market, which fell by 2.4% in 2019, sales in the much larger used car market remained around their long-term average of 7.9mln vehicles.

S & U noted that used car prices have stabilised and highlighted a report in January's Motor Finance magazine, which indicated a rise in overall used car prices of 6.4% during 2019.

All of which has been good news for Advantage, which saw a record number of loan applications and more than 23,300 new agreements in the year to the end of January - the company’s financial year. This represents an 11% increase year-on-year.

S & U said customer numbers are now at a record 64,200 and net receivables stand at around £280mln, up about 8% on last year.

Aspen Bridging, the group’s relatively new property bridging operation, continues to make progress.

There have been signs of the property market picking up following the decisive General Election result, but S & U added that there will be a lag before this upturn in activity is fully reflected in the Aspen business.

The board has recommended an increased second interim dividend of 36p, compared to 35p the year before.

Total dividends for the year will, therefore, be up 4.5% year-on-year at 70p.

 

What the boss says

"Although the UK may not yet have reached the sunlit uplands of renewed growth and consumer confidence which the General Election result makes possible,

"S & U's prospects for the year ahead are good. From a sound financial base, S & U is very well placed to take advantage of this in our habitually responsible and sustainable way,”

 

 

 

 

What the broker says 

In a note to clients in February, analysts at Peel Hunt pointed out: “The overall message from S&U’s pre-close update is that trading for the year to January is expected to be in line with consensus expectations.”

They said they were making no changes given the overall comment, and for the year to January 2020, the Peel Hunt analysts are forecasting pre-tax profits of £35.0mln and earnings per share of 239p, broadly in line with the consensus for £35.7mln and 241p respectively.

Peel Hunt repeated an ‘add’ rating on S&U shares which its analysts noted “trade on c8x FY21 earnings and expected to yield just over 6%.”


 

Blue Sky

For the year to January 2020, uncertainty and slightly higher costs mean costs Peel Hunt has trimmed its forecasts to profits of £36mln and EPS of 245p. 

The shares have been one of the best performers in the sector over the last six months and trade on 8.4 times current year's earnings, which is close to the sector average.

Add says the broker with a 2,300p target price that compares to the market's 211p.

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Watch

S & U PLC focused on accelerating profit growth next year

S & U PLC’s (LON:SUS) Anthony Coombs tells Proactive London's Andrew Scott that recent trading's 'generally been very good'. ''It's not trading at record levels but given the uncertainty that we're seeing in the economy generally and the general growth rate and levels of consumer...

on 20/12/19

4 min read