S&U - Set for further growth with tighter credit criteria

S&U’s core non-prime motor finance business, Advantage, has delivered 18 consecutive years of profit growth, including a 20% increase in FY18. A mix change towards higher-risk customers meant a higher rate of impairment but the risk-adjusted return on receivables only declined slightly and, looking ahead, should be at least stable following a tightening of criteria. Meanwhile, the scope for profitable receivables growth seems good given a market share of c 1% and, separately, the property brid...

Update: Strong growth, strong balance sheet

Following last year’s profitable sale of its stable but relatively low-growth home credit activity, S&U is now focused on its well-established and fast-growing motor finance business, Advantage. It is also looking for opportunities to invest in a new business, but will not do so unless the right opportunity appears. In the meantime, Advantage continues to make strong progress and S&U appears cautiously valued.

Outlook: Growth opportunities and delivery

S&U Group is fundamentally changing following the sale of its home collect business (£50.5m profit on disposal and a £1.25 special dividend). Resources (S&U currently has net cash) will be devoted to accelerated growth in motor finance and SME specialist lending. The special dividend was below our forecast, but reflects management confidence in its opportunities. H116 motor division profits (£9.7m, £7.7m in H115) were ahead of the run rate of our estimates, primarily due to better impairment...

Update: Focus on growing car finance

Following an unsolicited offer, S&U is selling its home collect business. Strategically, the sale allows greater resource to be devoted to the higher-growth car finance business (cash proceeds £82.5m, NAV increased by £47m) and an as yet unquantified but significant capital repatriation. Our valuation shows a modest increase on the disposal. We have cut our near-term normalised earnings forecasts modestly as the benefit of the full deployment of the sale proceeds is unlikely in the forecast pe...

Update: Growth as promised, more to come

S&U has been promising excellent growth and in FY15 it delivered even more than was expected. Pre-tax profits were up 34% and EPS was up 38% on FY14. This was driven by a 48% increase in motor advances and home credit, which has been stable for many years, delivered an 11% increase in advances on a 7% increase in customer numbers. Funding continues to be prudent (gearing 66%) and a deposit licence is being sought. We expect modest consensus upgrades.

Institutional Comment: Daily comment

Outlook: SUperb growth continues

S&U had promised excellent growth. It delivered even more than was expected. It saw a 73% increase in motor transactions and home credit, which has been stable for many years, and delivered a 12% increase in sales on a 10% increase in customer numbers. Funding continues to be prudent (gearing 70%) and a deposit licence is being sought. We expect consensus upgrades and a good reaction to these results.

Institutional Comment: Daily Comment