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S & U revs higher after better-than-expected results

The year just ended saw a pause in transactions growth at 21,053, down 14% year-on-year. The reasons for this "are sensible and soundly based", said the company's chairman, Anthony Coombs

Loan approval
S & U's aim is to maintain and improve the quality of its loan book

Shares in S & U PLC (LON:SUS) opened sharply higher after the company revealed another year of record profits for its car purchase finance arm.

The loans specialist cheered the market with a 12.3% increase in the full-year dividend to 118p in respect of fiscal 2019 from 105p in fiscal 2018.

Profit before tax in the year to the end of January rose 15% to £34.6mln from £30.2mln the year before on the back of an 11.8% increase in revenue to £89.2mln from £79.8mln the previous year.

WATCH: S&U 'firmly-footed' after increase in profits and steady growth

The Advantage Motor Finance division racked up its 19th successive year of record profits before tax, with profits advancing to £33.6mln from £30.2mln the year before.

More than one million loan applications were received by Advantage during the year, of which just over 2% were successful.

Reflecting a slightly more cautious approach to writing loans in the current volatile economic environment, the number of loans advanced fell 14% year-on-year to 21,000 but this was still the second highest level in the company's history.

Total annual collections rose 18% to £181.5mln from £153.3mln the year before.

The Aspen Bridging loans division is only in its second year of operation but is already profitable, racking up profits of £838,000 versus a loss the year before of £298,000 when the division incurred a lot of start-up costs.

During the year, Aspen Bridging saw its advances surge to £23.1mln from £13.3mln the year before.

For the group as a whole, borrowings at the end of January stood at £108mln, up slightly from £104mln a year earlier but still leaving the group plenty of headroom against its banking facilities of £135mln.

“This year I am particularly proud of the performance of our business and especially of our teams at Advantage and at Aspen,” declared Anthony Coombs, the chairman of S & U.

“They have worked ceaselessly on the myriad of small improvements in product design, process and customer service which a more constrained and competitive economic environment always requires. They continue to do so, building on experience and expertise in Advantage's case of nearly 20 years which is tried and tested and of proven success,” he added.

Coombs said the company’s prognosis for the next twelve months is “realistic, but optimistic”.

“The long-term outlook for responsible and good quality used car finance, at affordable monthly repayments provided by Advantage is strong. The continuing shortage of affordable housing and the ability to finance its provision similarly argues for further growth in Aspen's property bridging market.

“The combination of active markets, an expanded and dedicated team, a sound financial structure and responsible strategy, allows me to be confident of our continued success,” Coombs said.

Broker Shore Capital said the results were slightly better than it had expected.

“Advantage Finance (motor finance) is the key value driver and profit contributor of the group. Increasing competition and a more uncertain macro-economic environment resulted in a slowdown in year-on-year customer and net loan book growth to just 9% and 4% respectively (versus an increase of 26% and 30% in the prior financial year) with annual new deal volumes down 14% at 21,053,” Shore said.

“Nevertheless, the averaging effect of strong net loan book growth in the prior year helped drive an increase in divisional PBT [profit before tax] of 11% to £33.6mln (Shore: £33.1mln), although we expect profit growth to moderate somewhat going forward reflecting the slower recent net loan book growth,” it added.

Shares in S & U were up 15.4% at 2,040p in early deals. Shore Capital reckons the shares are worth 2,200p and notes that the shares are trading at their lowest level since 2014.

“We think that value is emerging and are therefore inclined to consider upgrading to a more positive stance, subject to a satisfactory results presentation,” the broker said.

Quick facts: S & U PLC

Price: 1625 GBX

Market: LSE
Market Cap: £197 m

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