Deep diveFinance

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


  • Trading in line with expectations
  • Motor finance customers reach record level
  • Aspen’s bridging loan book builds
  • Peel Hunt gives 'add' rating on the shares

Quick facts: S & U PLC

Price: £21.38

Market: LSE
Market Cap: £257.94 m

Trading in the first half of the year reflects continued and consistent growth in profitability which has been the S&U hallmark over the past 10 years

Anthony Coombs, chairman

What S & U does

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 owns:

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’s it doing

In a trading update for the first half, the company said it continues to trade well and in line with expectations despite a tough car market and a subdued housing market.

Demand for its motor finance arm Advantage was “healthy” with customer numbers rising 7% year-on-year to a record 62,000 over the period. The division now sees more than 110,000 applications a month.

Collections increased 7% and early repayment indicators on new business continued to show improvement following a tightening of underwriting last year.

The property bridging business, Aspen, delivered profitable growth, although at a slightly weaker pace than expected amid a slowdown in the housing market.

S&U said Aspen has been gradually building its bridging book and net amounts receivable at the half-year stood at more than £24mln, compared with £16.3mln last year.

The firm expects bridging receivables to continue to rise in the second half on the back of recent improvements to loan offerings, a wider product range and a closer alignment of its IT platform with large introducers.

What the boss says

S&U chairman, Anthony Coombs, said in August’s trading update: "Trading in the first half of the year reflects continued and consistent growth in profitability which has been the S&U hallmark over the past 10 years. 

“Transaction volumes and quality improvement, particularly in our motor finance business, are expected to be reflected in the pace of profits growth over the full year."

Blue Sky

Peel Hunt has an ‘add’ rating and target price of 2,300p on S&U. It expects net motor finance receivables to increase by 3% to £267.3mln for the year to January 2020, given the growth in customer numbers.

The broker estimates Advantage will contribute 95% towards group profits and property bridging accounting for the rest.

It added that Aspen’s bridging loan book is on track to meet its year-end forecast of £25.5mln.

Overall Peel Hunt has forecast pre-tax profit of £37.0mln, marginally ahead of consensus at £36.7mln.

“Management is optimistic given the transactions volumes and quality improvement that will underpin profitability in the core motor finance business, which is fairly predictable given defaults tend to happen towards the first half of a contract with the vast majority of those not defaulting (in the the first half) running to the end of the term,” the broker said.

“Early repayment indicators on new motor finance business continue to show improvement, boding well for future profitability.”

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