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S & U’s Advantage Finance in the driving seat

Last updated: 01:31 11 Feb 2017 AEDT, First published: 01:08 14 Feb 2015 AEDT

Yellow car with Ubuntu number plate
Advantage Finance's loan book remains rock solid

Niche lender S & U Plc's (LON:SUS) motor finance arm continues to go from strength to strength, encouraging the company to venture into other markets.

Following the sale of its home credit division Loansathome4u to NSF, which generated around £80 million net of fees and tax, the group invested the money into the accelerated growth of the motor business -  Advantage Finance.

That looks like a sound decision.

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 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; it now has a record 43,000 live customers, up from slightly less than 42,000 at the time of December trading statement.

Any concerns analysts might have had about its expansion drive putting loan quality at risk were put to bed, with the group stating that the level of bad loans remains stable and within the parameters expected.

Broker Shore Capital 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.

On the regulatory front, Advantage recently got the full licence authorisation from the Financial Conduct Authority.

Meanwhile, its 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.

“We confidently expect a successful pilot over the next fifteen months,” the group 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. 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 from 23p the year before. Combined with the year's first dividend, the aggregate divi 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,” broker Shore Capital 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.

New car wobble should help Advantage car loan business, says S&U’s Coombs

Anthony Coombs, chairman of S&U PLC (LON:SUS) told Proactive he expects the used car market to remain strong and underpin another good year for the finance firm. Unlike new cars, the used car finance market grew by 6% in 2017 helping S&U lift profits by 20%. ''Our customers...

on 28/3/18