S&U Update Note - Positive Results Overall
This week's preliminary results from S & U confirmed the trends highlighted in the trading update in February. The core Advantage non-prime motor finance business posted its 19th consecutive year of profit growth. This despite headwinds which saw an increasingly competitive market combined with S & U's decision to impose stricter underwriting criteria, which caused a fall in the total number of loans outstanding. Notwithstanding increased competition, Advantage's relatively low market share (c. 1.0%) in a UK second hand car market growing at 7.0% suggests some immunity.Aspen Bridging Finance continued to grow, adding 62 loans at an average size of £375k in the year and taking the total book to £18.3m after the repayment of £18.3m, including up-front retentions. The book is guided to reach £30m by the end of calendar year 2019.
Our current year and 2021/22 earnings forecasts are now slightly lower, reflecting, at Advantage, the tighter lending standards and a modest erosion of gross margins due to higher commissions. At earnings, this is partially offset by lower provisioning and an increase in average advance size as the focus moves up the credit quality curve.
S & U's approach and reporting continue to be conservative, and with its continuous improvement ethos, its market-leading systems, and its healthy funding position it looks set to continue to report earnings growth over our forecasting period.
S & U is engaged in the provision of consumer credit and car finance throughout the United Kingdom.
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