S&U Reaction Note - Cautiously Positive Trading Update
S & U's trading update reinforced the positive messages contained in May's AGM statement. Average monthly applications for Advantage (non-prime motor lending) have continued to grow, allowing the Group to further improve new loan quality. As a result, while lending growth lags total demand, the potential for lower impairment charges in the medium term has increased in our view. Current year impairment is likely to be slightly higher than we previously forecast but we are confident that slower cost growth elsewhere will mitigate this impact on earnings. More importantly, we believe that impairment charges are likely to peak in the current year and could start to fall by the end of calendar 2019. This is critical to the Group's status within the sector. It has continued to build the Advantage customer base at the same time as improving the quality of the associated loan book. This augurs well for 2020 and beyond; an outlook which is not fully recognised in the current valuation.S & U is engaged in the provision of consumer credit and car finance throughout the United Kingdom.
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