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Experienced specialist lender performs well

S&U 29 September 2022 Update
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S&U

Experienced specialist lender performs well

H123 results

Financial services

29 September 2022

Price

1,980p

Market cap

£240m

Net borrowings (£m) at 31 July 2022

154

Shares in issue

12.1m

Free float

27%

Code

SUS

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(10.0)

(7.3)

(29.8)

Rel (local)

(4.0)

(2.0)

(25.7)

52-week high/low

2,940p

1,995p

Business description

S&U’s Advantage motor finance business lends on a simple hire-purchase basis to lower- and middle-income groups that may have impaired credit records that restrict their access to mainstream products. It has c 63,000 customers. The Aspen property bridging business has been developing, following its launch in early 2017.

Next events

Q323 trading update

8 December 2022

Analysts

Andrew Mitchell

+44 (0)20 3681 2500

Martyn King

+44 (0)20 3077 5745

S&U is a research client of Edison Investment Research Limited

With macroeconomic clouds gathering, it is not surprising that a small specialist non-bank lender such as S&U has been derated. However, the main business has a long track record and the group is managed in a conservative way focusing on customers, targeting sustainable long-term growth and employing relatively low gearing.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/21

83.8

18.1

120.7

90.0

16.4

4.5

01/22

87.9

47.0

312.7

126.0

6.3

6.4

01/23e

101.6

40.9

274.1

132.0

7.2

6.7

01/24e

117.3

41.9

279.3

133.0

7.1

6.7

Note: *PBT and EPS are reported. EPS are diluted.

Positive H123 results

S&U’s total net receivables were £370m at the end of July, up 21% from H122. Within this growth, Advantage motor finance receivables increased by 13% to £280m and Aspen property bridging loans by 56% to £90m. H123 revenue was £49.4m (+15%) and pre-tax profit increased by 5% to £20.9m; the smaller increase in profit reflected a lower-than-normal level of impairment charge at Advantage last year following previous exceptionally high pandemic-period charges. The group reported that credit quality remained strong and improving in terms of bad debt, default level and collections against due. Earnings per share increased by 6% to 140.7p and a first interim dividend of 35p (33p) was announced.

Outlook presents challenges and opportunities

While S&U indicates that both businesses continue to perform well, it acknowledges the more challenging economic background with growing pressure on household incomes and the potential for a cooling in the housing market as rates rise. Advantage has adjusted its affordability criteria to reflect conditions, refined credit metrics and broadened its range of introducers, supporting its ability to address opportunities in the market that offer attractive risk-adjusted yields. Aspen is monitoring valuations and the availability of refinancing closely, but its high-net-worth borrowers are showing resilience and it stands to benefit if some participants withdraw from the market or act more cautiously.

Valuation

Our estimates for FY23 and FY24 are only changed modestly: increases in EPS of 1.9% and 3.5% respectively, with the latter reflecting a lower assumed tax rate. The shares have shown weakness (along with peers) as the macroeconomic outlook has become more difficult and trade at a price to book ratio of 1.1x compared with the 10-year average of 1.8x. An ROE/COE model suggests the share price discounts a sustainable return on equity (ROE) of 11.3%, compared with the historical five-year average of 15.8%. The 6.7% prospective yield is an additional attraction for patient shareholders.

H123 results analysis

Exhibit 1 provides a summary of S&U’s results for H123 with comparative figures for H122 and H222. We highlight a number of points from this, comparing the H123 result with H122 unless stated.

S&U’s revenues were up 15%, within which motor finance revenues increased by 13% on 9% higher average net receivables. Property bridging revenues rose 35% on a 68% increase in the average loan book.

Total impairments were up 28%. There was a 13% increase for motor finance reflecting the net effect of increases in stage 1 provisions accompanying receivables growth and higher macroeconomic overlays, offset by strong collections and lower than expected realised bad debt. This left the profit and loss charge at 13.9% of revenue, compared with 4.8% for FY22, when there was a writeback in the second half, but still significantly lower-than-normal compared with pre-pandemic levels of around 20%. The charge at Aspen was equivalent to 7% of revenue and up 90% reflecting the rapid growth in the loan book.

Other cost of sales, which includes broker commissions, increased by 25% as a result of increased activity levels in both businesses. In motor finance the per-transaction cost at £883 was 3% higher than the prior year period, mainly reflecting mix change between introducing brokers and product categories. Advantage noted that it has reduced its dependence on its three main brokers to 34% compared with 44% two years ago, part of its policy of diversifying its channels to market. Administration costs increased by 17% while the finance expense increased by 46%, reflecting the combination of increased average debt (+26%) and a funding cost of 3.9% versus 3.3%. The result was a pre-tax profit of £20.9m, up 5% on the prior year period. Analysing the pre-tax profit by company, Advantage contributed £19.0m (+3%), Aspen £2.0m (+32%) and there were central costs of £0.1m. Net profit and EPS were up nearly 6%. Reflecting this performance and the board’s objective of a twice covered dividend, the first interim dividend was increased from 33p to 35p.

Exhibit 1: Results summary

£’000s except where stated

H122

H222

H123

Sequential

% change

H123 vs H122

% change

Number of new motor loans

9,697

10,050

11,800

17.4

21.7

Motor finance receivables at period end

248,751

259,036

279,930

8.1

12.5

Bridging receivables at period end

57,666

63,879

90,150

41.1

56.3

Revenue

Motor finance

38,583

40,315

43,641

8.3

13.1

Property bridging

4,230

4,761

5,711

20.0

35.0

Total

42,813

45,076

49,352

9.5

15.3

Impairments

Motor finance

(4,868)

1,063

(6,069)

N/A

24.7

Property bridging

(223)

(92)

(423)

359.8

89.7

Total

(5,091)

971

(6,492)

N/A

27.5

Other cost of sales

(9,125)

(9,646)

(11,419)

18.4

25.1

Administration expenses

(6,607)

(7,072)

(7,700)

8.9

16.5

EBITDA

21,990

29,329

23,741

-19.1

8.0

Depreciation

(268)

(261)

(254)

-2.7

-5.2

Operating profit / loss

21,722

29,068

23,487

-19.2

8.1

Finance expense

(1,778)

(1,994)

(2,597)

30.2

46.1

Pre-tax profit

19,944

27,074

20,890

-22.8

4.7

Tax

(3,790)

(5,246)

(3,801)

-27.5

0.3

Net profit

16,154

21,828

17,089

-21.7

5.8

EPS fully diluted (p)

133.0

179.7

140.7

-21.7

5.8

Dividend per share (p)

33.0

93.0

35.0

6.1

Source: S&U, Edison Investment Research

Looking more closely at Advantage’s operational figures, a key feature was a better-than-expected collections and bad debt performance even as cost-of-living pressures began to increase. Advantage indicates that bad debts and voluntary terminations were 93.8% of the H121 level, while the average loss per bad debt was at 80.9% of the prior year period. Factors here include: the still-high level of employment, the importance of having transport to get to work, strong second-hand car prices and, importantly, where customers do have financial difficulties, a prompt and supportive response from Advantage that seeks to keep customers in their cars and making payments they can afford. Otherwise, we would highlight that post-pandemic Advantage has returned to servicing customers with lower credit scores and its average customer score has therefore declined from 892 in FY22 to 866 for H123. In tandem with this, the flat interest rate charged has ticked up from 16.3% for FY22 to 16.7% for H123, while annualised revenue as a proportion of average receivables was 32.4% in H123 versus 31.1% for H122.

Sales and marketing developments have included amendments to affordability calculations to address cost-of-living pressures, the implementation of a new scorecard in July, integrating the scorecard with key brokers and linking to the Credicar decisioning system that points customers to an appropriate lender. Prospectively, work is underway to link with HD Decisions, another decisioning system that would allow Advantage to expand in the aggregator website market. Other initiatives include a re-engineering of customer renewal activities and a redesign of the Advantage website.

On the regulatory front, Advantage highlights three areas of FCA focus currently:

The cost-of-living crisis: here Advantage has, as noted, amended affordability calculations and continues to provide flexible support for customers with a special team dealing with vulnerable customers.

Commission disclosure: the main risk here is seen as being for companies that had variable commission arrangements. Advantage has always operated with fixed commission structures and is ready to move to full commission disclosure if required by the FCA.

New consumer duty requirements where guidance was issued in July. Advantage has carried out a review of measures needed to comply and will make limited appropriate adjustments to management information, evidence gathering and customer communications.

At Aspen there were 73 bridging loans made during the period (66 in H121) and the average value of loan increased from £618,000 for FY22 (ex-CBILS1 loans, which are now all repaid) to £873,000. The average maximum gross loan to value has been stable at 72% as has the original term at 11 months. In H121 the average original blended yield was 0.88% compared with 0.95% for FY22, partly a reflection of an improvement in the quality of borrowers. As at Advantage, collections were strong with 47 repayments in the half year, leaving 128 live loans outstanding. There are only six in default and they are seen as likely to settle in Q323.

  Covid Business Interruption Loan Scheme

Background and outlook

In this section we update the charts we usually include to provide background indicators for Advantage and Aspen. On this occasion the very recent developments in government economic policy and the negative reaction this has received in markets mean that the outlook is particularly clouded and the data we show is yet to reflect the potential implications of this.

For completeness, Exhibit 2 shows independent economic forecasts collected by HM Treasury in early September. As highlighted, these forecasts were made before the most recent government moves to soften the impact of energy cost increases, tax changes and the significant market interest and exchange rate moves. Since July, GDP forecasts continued on a downward trend with the averages for 2022 and 2023 standing at 3.5% and 0.2% in the September report. Reflecting risks seen in the economic outlook, the low end of the range of GDP forecasts for 2023 showed a GDP contraction of 1.9%. The expected levels of unemployment have seen only minor changes, which is understandable given this measure tends to be a lagging indicator and the starting point in the labour market is tight. In its August Monetary Policy Report, the Bank of England looked for unemployment to increase to 5.5% and 6.3% in 2024 and 2025, given a weaker growth outlook, potentially introducing greater slack in the economy. On inflation, the independent forecasts had already increased in previous months but saw a further rise in September.

Exhibit 2: Comparison of independent economic forecasts for the UK (September)

%

Average

Low

High

GDP growth

2022

3.5

2.3

5.5

2023

0.2

-1.9

2.1

Labour Force Survey unemployment rate Q4

2022

4.1

3.6

4.5

2023

4.3

3.2

5.0

Inflation Q4 (CPI)

2022

10.2

7.4

14.0

2023

4.0

0.9

7.6

Source: HM Treasury

Exhibit 3 shows how consumer confidence staged a major recovery last year before falling sharply again through a combination of the arrival of the Omicron wave, growing concern over the cost of living and the war in Ukraine. The most recent reading shows a sharp decline as cost-of-living pressures and the prospect of higher interest rates weighed more heavily on confidence. More recent developments seem likely to weaken confidence further. Such pressures are potentially particularly relevant for Advantage customers, although the company has previously noted that wages are likely to adjust and that its customers tend to depend on their vehicles for transport to work. As mentioned earlier, Advantage has made adjustments for the rise in inflation within its affordability calculations. While government measures are set to mitigate cost pressures, it remains to be seen how consumer behaviour will adjust to the changing circumstances they face.

Exhibit 3: GfK UK consumer confidence indicator

Exhibit 4: UK redundancies and unemployment

Source: Refinitiv (last value September 2022)

Source: ONS (last value July 2022)

Exhibit 3: GfK UK consumer confidence indicator

Source: Refinitiv (last value September 2022)

Exhibit 4: UK redundancies and unemployment

Source: ONS (last value July 2022)

In Exhibit 4 we can see that, after an increase in 2020, the unemployment rate has since moved noticeably below prior levels. The level of redundancies, a more immediate measure, saw a very sharp spike as the pandemic took hold, but fell rapidly and is still clearly below pre-pandemic levels. As discussed above, some increase in these measures seems likely in due course given the trend in forecasts.

Next, we look at data on used car transactions and used car finance. Exhibit 5 compares the monthly sales pattern in the four years from 2019–22. This highlights the sharp drop in used car transactions in April 2020, but volume recovered very well following the initial lockdown. From April 2021 activity was close to pre-pandemic levels, as represented here by the 2019 monthly figures, although supply limitations resulting from constraints on new car production tempered volumes. This remains a factor in 2022 and first-half used car transaction volume was down 13% compared with the first half of 2019. Exhibit 6 shows a similar pattern in used car finance, with seasonal dips evident in addition to lockdown impacts. Calendar 2022 started strongly although the trend in Q2 was weaker than in Q1. The latest data available, for July, showed the value of advances up 13% on July 2021 while volume was up just 3%; the chart shows a recent flattening out in volume and value at a relatively high level.

Exhibit 5: Monthly used car transactions 2019–22

Exhibit 6: Used car finance through dealerships

Source: SMMT (last value June 2022)

Source: Finance and Leasing Association (last value July 2022)

Exhibit 5: Monthly used car transactions 2019–22

Source: SMMT (last value June 2022)

Exhibit 6: Used car finance through dealerships

Source: Finance and Leasing Association (last value July 2022)

Used car prices (see Exhibit 7) were buoyant in 2020 and then experienced a very sharp step up from mid-2021, with strong consumer demand and reduced supply pushing prices up. From February this year the index showed small month-on-month decreases (see Exhibit 8), suggesting a slight softening of demand and/or easing of supply constraints. Nevertheless, the last two monthly readings have shown a small increase and prices remain at a historically high level. Advantage has pointed out that with the supply of new cars still constrained there is not the volume of discounted cars being sold to rental companies that used to be the case. This may mean that used prices are sustained at high levels for longer than had been expected. At the margin a fall in auction prices, eventually prompted by reduced demand or greater supply, would be a negative for Advantage, but its exposure here through repossessed car sales is moderated by the relatively low value of the vehicles it finances.

Exhibit 7: Second-hand car price index

Exhibit 8: Monthly change in second-hand car prices

Source: ONS CPI index (last value August 2022)

Source: ONS CPI index, m-o-m % change

Exhibit 7: Second-hand car price index

Source: ONS CPI index (last value August 2022)

Exhibit 8: Monthly change in second-hand car prices

Source: ONS CPI index, m-o-m % change

Turning to the background for Aspen Bridging, Exhibit 9 shows the number of UK non-residential and residential transactions, with residential being most relevant for Aspen. Both saw sustained improvement following the initial lockdown in 2020, with residential data fluctuating sharply as buyers sought to take advantage of the temporary increase in the stamp duty land tax nil rate band. The latest reading, for June 2022, shows an activity level similar to pre-pandemic levels. Reduced consumer confidence and higher interest rates may well affect prospective transaction volumes and Aspen itself reports a slight slowing in the residential market and that early loan repayments are starting to slow. Changes in stamp-duty land tax announced this month, raising the levels above which duty is payable, provide some support and with rates rising generally Aspen indicates that earlier competitive pressure on rates in the bridging market has eased and that pricing has begun to increase. On a longer view, S&U continues to see an imbalance between supply and demand for good-quality homes as a favourable backdrop for its customers who are refurbishing and developing properties. As a small business, Aspen has significant scope for expansion now that it is more established in the market.

Exhibit 9: UK property transactions (seasonally adjusted)

Source: HM Revenue & Customs. Note: Figures for June to August 2022 are provisional. SA = seasonally adjusted.

Estimate changes and financial position

Following the results, we have adjusted our estimates, with the key figures shown below and further details given in the financial summary (Exhibit 12). The main changes we have made include increased assumptions for funding costs and revenue yield on receivables to reflect the rise in interest rates. While Aspen appears likely to be able to adjust its rates quite quickly to reflect funding costs, Advantage has less scope given the four- to five-year duration of its loans and the relatively high rates it charges its non-prime customers. Following the first half performance, our loan-loss assumptions have been reduced but we still allow for greater normalisation in the rate of impairment in FY24. We have factored in the cancellation of the planned increase in corporation tax so FY24 now has an assumed tax rate of 19%. The net result of these changes is modest; at the pre-tax profit level our FY23 estimate increases by 1.4% while for FY24 there is a 2.9% decrease. The increase in FY24 earnings per share reflects the reduction in the assumed tax rate.

Exhibit 10: Changes to estimates

Year-end
January

Revenue (£m)

PBT (£m)

EPS (p)

DPS (p)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

FY23e

100.2

101.6

1.4%

40.3

40.9

1.4%

268.9

274.1

1.9%

130.0

132.0

1.5%

FY24e

109.4

117.3

7.2%

43.1

41.9

-2.9%

269.7

279.3

3.5%

133.0

133.0

0.0%

Source: Edison Investment Research

The segmental cash flow analysis below shows how Advantage cash flow has turned negative as growth in advances has outpaced collections; Aspen has continued to expand its loan book while maintaining strong collections.

Exhibit 11: Segmental cash flow analysis

£m

H122

H222

H123

Comments (versus H222)

Motor Finance

Advances

(68.3)

(72.6)

(90.9)

+25% with demand still strong

Monthly collections

75.1

77.6

79.5

Remain at a high level in part reflecting close customer contact

Settlements/reloans

16.7

17.4

19.2

Debt recovery

8.4

8.7

9.0

Overheads/interest

(14.7)

(15.9)

(18.1)

+14% in part reflecting increased transaction volume

Corporation tax

(2.5)

(5.8)

(3.6)

Dividend

(7.0)

(3.0)

(10.5)

Motor Finance (outflow)/inflow

7.7

6.4

(15.5)

Advances outpace collections with resumed growth and dividends paid

Property bridging

Gross advances

(64.4)

(47.2)

(63.7)

Up 35% (H122 was boosted by CBILS loans)

Retention collections

7.9

5.4

6.8

Collections

34.1

31.6

30.7

FY22 levels boosted by CBILS repayments

Debt recovery

2.8

8.6

5.6

Overheads/interest

(2.6)

(2.7)

(3.3)

Corporation tax

(0.1)

(0.3)

(0.4)

Dividend

(0.8)

Property bridging (outflow)/inflow

(22.3)

(4.6)

(25.1)

Investment in expanding the loan book

Other (outflow)/inflow

(1.7)

(0.3)

(0.2)

Group (outflow)/inflow

(16.3)

1.5

(40.8)

Opening net debt

98.8

115.1

113.6

Closing net debt

115.1

113.6

154.4

Source: S&U, Edison Investment Research. Note: Net debt is shown excluding lease liability.

At end H123 net debt stood at £154.4m, giving a debt-to-equity ratio of 73% compared with 61% for H122. This is still well within the board’s comfort zone. To provide flexibility for further growth, £30m of revolving credit facilities have been added since the end of H123, taking total committed facilities to £210m. This includes revolving facilities of £160m with maturities in 2024, 2025, 2026 and 2027. In addition, there are two £25m term loans maturing in 2028 and 2029.

Valuation

The shares trade on prospective P/E multiples of 7.2x and 7.1x for this year and next. The prospective yield is 6.7%. We continue to frame valuation using our ROE/COE calculations. If we assume a cost of equity (COE) of 10% and long-term growth of 2%, then the share price at the time of writing (1,980p) would be consistent with an ROE of 11.3%, which is well below our estimates for FY23 (15.4%) and FY24 (14.5%). For the five-year period FY18–22, which includes both pre- and post-pandemic results, the average ROE was 15.8%, suggesting the share price builds in a substantial allowance for current macroeconomic threats.

Exhibit 12: Financial summary

£'000s except where stated

2018

2019

2020

2021

2022

2023e

2024e

Year end 31 January

PROFIT & LOSS

Revenue

 

 

79,781

82,970

89,939

83,761

87,889

101,648

117,338

Impairments

(19,596)

(16,941)

(17,220)

(36,705)

(4,120)

(15,192)

(21,242)

Other cost of sales

(17,284)

(15,751)

(19,872)

(14,264)

(18,771)

(22,809)

(23,768)

Administration expenses

(9,629)

(10,763)

(12,413)

(10,576)

(13,679)

(15,021)

(16,427)

EBITDA

 

 

33,272

39,515

40,434

22,216

51,319

48,625

55,901

Depreciation

 

 

(294)

(414)

(450)

(520)

(529)

(496)

(458)

Op. profit (incl. share-based payouts pre-except.)

 

 

32,978

39,101

39,984

21,696

50,790

48,130

55,443

Exceptionals

0

0

0

0

0

0

0

Non-recurring items

0

0

0

0

0

0

0

Investment revenues / finance expense

(2,818)

(4,541)

(4,850)

(3,568)

(3,772)

(7,227)

(13,559)

Profit before tax

 

 

30,160

34,560

35,134

18,128

47,018

40,903

41,884

Tax

(5,746)

(6,571)

(6,252)

(3,482)

(9,036)

(7,603)

(7,958)

Profit after tax

 

 

24,414

27,989

28,882

14,646

37,982

33,299

33,926

Average Number of Shares Outstanding (m)

12.1

12.1

12.1

12.1

12.1

12.1

12.1

Diluted EPS (p)

 

 

202.4

232.0

239.4

120.7

312.7

274.1

279.3

EPS - basic (p)

 

 

203.8

233.2

239.6

120.7

312.8

274.1

279.3

Dividend per share (p)

105.0

118.0

120.0

90.0

126.0

132.0

133.0

EBITDA margin (%)

41.7%

47.6%

45.0%

26.5%

58.4%

47.8%

47.6%

Operating margin (before GW and except.) (%)

41.3%

47.1%

44.5%

25.9%

57.8%

47.3%

47.3%

Return on equity

16.7%

17.6%

16.8%

8.1%

19.6%

15.4%

14.5%

BALANCE SHEET

Non-current assets

 

 

181,015

185,383

197,806

173,413

184,189

212,848

231,640

Current assets

 

 

84,178

95,430

108,275

111,426

143,040

184,815

203,507

Total assets

 

 

265,193

280,813

306,081

284,839

327,229

397,663

435,147

Current liabilities

 

 

(7,927)

(6,722)

(7,424)

(5,309)

(8,789)

(6,667)

(7,313)

Non current liabilities inc pref

(104,450)

(108,724)

(119,183)

(98,501)

(111,693)

(166,521)

(185,333)

Net assets

 

 

152,816

165,367

179,474

181,029

206,747

224,476

242,501

NAV per share (p)

1,276

1,375

1,493

1,490

1,704

1,850

1,999

CASH FLOW

Operating cash flow

 

 

(43,418)

10,530

4,946

32,940

(2,094)

(36,070)

(592)

Net cash from investing activities

(1,040)

(785)

(265)

(1,112)

(284)

(369)

(310)

Dividends paid

(11,377)

(13,080)

(14,461)

(13,098)

(12,263)

(15,556)

(15,913)

Other financing (excluding change in borrowing)

12

14

14

2

1

1

0

Net cash flow

 

 

(55,823)

(3,321)

(9,766)

18,732

(14,640)

(51,994)

(16,815)

Opening net (debt)/cash

 

 

(49,167)

(104,990)

(108,311)

(118,077)

(99,345)

(113,985)

(165,978)

Closing net (debt)/cash

 

 

(104,990)

(108,311)

(118,077)

(99,345)

(113,985)

(165,978)

(182,793)

Source: S&U accounts, Edison Investment Research. Note: EPS on a reported basis.


General disclaimer and copyright

This report has been commissioned by S&U and prepared and issued by Edison, in consideration of a fee payable by S&U. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by S&U and prepared and issued by Edison, in consideration of a fee payable by S&U. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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