Last close As at 05/08/2026
GBP19.60
▲ 20.00 (1.03%)
Market capitalisation
GBP239m
Research: Financials
S&U’s trading update (for the period since its July half-year end) was upbeat, reporting growth accelerating in both Advantage motor finance and Aspen bridging finance. Recent developments in the pandemic could temper near-term consumer confidence but, looking beyond this, S&U has successfully navigated the onset of COVID-19 while continuing to develop both its businesses, creating a good basis for longer-term growth.
Written by
S&U |
Upbeat update |
Trading update |
Financial services |
10 December 2021 |
Share price performance
Business description
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Analysts
S&U is a research client of Edison Investment Research Limited |
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S&U’s trading update (for the period since its July half-year end) was upbeat, reporting growth accelerating in both Advantage motor finance and Aspen bridging finance. Recent developments in the pandemic could temper near-term consumer confidence but, looking beyond this, S&U has successfully navigated the onset of COVID-19 while continuing to develop both its businesses, creating a good basis for longer-term growth.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
|
01/21 |
83.8 |
18.1 |
120.7 |
90.0 |
22.1 |
3.4 |
|
01/22e |
86.5 |
38.7 |
258.2 |
115.0 |
10.4 |
4.3 |
|
01/23e |
95.2 |
38.0 |
253.1 |
127.0 |
10.6 |
4.8 |
|
01/24e |
103.7 |
41.0 |
256.7 |
129.0 |
10.4 |
4.8 |
|
Note: *PBT and EPS are reported. EPS are diluted.
Advantage motor finance
Advantage is reported to be seeing a strong recovery in both profitability and new business transactions, which were up 30% y-o-y in the period, despite a shortage of used cars in showrooms and a fall of 6% in UK used car sales in calendar Q321. S&U looks for net loan advances of over £140m for the full year (in line with our estimate). Collections remain very strong and credit quality has at least maintained the improvement reported at the half-year end, mirroring the positive comments on this front by Provident Financial in its Q3 update and suggesting the possibility of lower impairment than we currently factor in. Looking beyond the current year, Advantage continues to work on enhancing customer service, underwriting and marketing to underpin longer-term growth.
Aspen bridging finance
The receivables book at Aspen has grown to £60m compared with £57.6m at the end of H122 and £34.1m at end FY21. Transaction numbers are up 38% year to date versus the prior year period despite a quieter housing market. Profits are reported to have made further excellent progress, with margin maintained and credit quality remaining strong. The current pipeline of deals has doubled over the period and a new Bridge to Let product has been introduced to address a market opportunity identified by Aspen. The lumpy nature of Aspen’s loans makes forecasting the level of loan growth for specific periods difficult, but the scope for substantial medium-term growth remains in place.
Valuation
We have not changed our estimates at this stage and on this basis the FY22e P/E ratio is 10.4x and the yield 4.3%. Note that our FY24 earnings estimate allows for the introduction of a 25% corporate tax rate. Using a return on equity (ROE)/cost of equity (COE) model, the current share price appears to imply an assumed ROE of less than 16% compared with our current year estimate of 16.5% (see page 4).
Funding
The high level of collections in both businesses has contributed to current borrowings of £113m compared with £115.5m at end H122. There is substantial headroom for the accelerated growth the group looks for in FY23 given its banking facilities (£180m at end H122).
Background
In this section, we update background data we track as indicators for Advantage and Aspen, starting with economic and industry figures relevant for the used car finance market.
Exhibit 1 shows independent forecasts for UK GDP and unemployment as collected by the UK Treasury in November. Compared with the September data shown in our last note, movements are limited although estimates for unemployment are slightly lower. This should be positive for Advantage as unemployment is an important sensitivity for credit risk and ties in with S&U’s recent experience of credit quality.
Exhibit 1: Comparison of independent economic forecasts for the UK (November)
% |
Average |
Average of new forecasts |
Low |
High |
GDP growth |
||||
2021 |
7.0 |
7.0 |
6.0 |
8.1 |
2022 |
5.1 |
5.0 |
3.5 |
8.1 |
Labour Force Survey unemployment rate Q4 |
||||
2021 |
4.9 |
4.8 |
4.5 |
5.5 |
2022 |
4.6 |
4.5 |
3.9 |
6.0 |
Source: HM Treasury
Exhibit 2 shows that consumer confidence has staged a major recovery, albeit with a recent softening. Uncertainties remain and the influence of COVID-19, supply bottlenecks and inflation fears is likely to fluctuate, but in due course a progressive normalisation in economic activity seems likely to continue. Exhibit 3 shows that, after an increase, the unemployment rate has moved down towards prior levels. Redundancies, a more immediate measure, saw a very sharp spike as the pandemic took hold, but fell rapidly and are now at pre-pandemic levels.
|
Exhibit 2: GfK UK consumer confidence indicator |
Exhibit 3: UK redundancies and unemployment |
|
|
|
Source: Refinitiv (last value September 2021) |
Source: ONS (last value September 2021) |
|
Exhibit 2: GfK UK consumer confidence indicator |
|
|
Source: Refinitiv (last value September 2021) |
|
Exhibit 3: UK redundancies and unemployment |
|
|
Source: ONS (last value September 2021) |
We now turn to data on used car transactions and used car finance. Exhibit 4 shows the sharp drop in used car transactions in April 2020. Volume recovered very well following the initial lockdown, albeit with a further dip following subsequent lockdowns. Since April 2021 there has been a return to activity close to pre-pandemic levels, as represented here by the 2019 monthly figures, although the April bounce was smaller than industry participants had thought possible and, as noted earlier, for Q321 there was a 6.2% reduction against a relatively strong Q220 period. Exhibit 5 shows a similar pattern in used car finance.
|
Exhibit 4: Monthly used car transactions 2019–21 |
Exhibit 5: Used car finance through dealerships |
|
|
|
Source: SMMT. Note: Last value September 2021. |
Source: Finance and Leasing Association. Note: Last value October. |
|
Exhibit 4: Monthly used car transactions 2019–21 |
|
|
Source: SMMT. Note: Last value September 2021. |
|
Exhibit 5: Used car finance through dealerships |
|
|
Source: Finance and Leasing Association. Note: Last value October. |
Used car prices (see Exhibit 6) were buoyant in 2020 and have seen a sharp step up in the data since July this year, with strong consumer demand and reduced supply pushing prices up. The ONS data are supported by a similarly marked strength in the Autotrader retail price index. An improving supply of new cars and hence used stock seems likely during 2022 but Advantage’s exposure to auction prices for repossessed cars is moderated by the relatively low value of vehicles it finances. Also, for the moment, the demand side of the equation seems likely to remain robust.
|
Exhibit 6: Second-hand car prices (CPI index) |
|
|
Source: ONS (last value October 2021) |
Looking at the background for Aspen Bridging, Exhibit 7 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. On a longer view, S&U sees 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 should also have significant scope for expansion now that it is more established in the market. Aspen’s involvement in the Coronavirus Business Interruption Loan Scheme has given it useful access to larger and more established developer customers as well as expanding the loan book in the short term.
|
Exhibit 7: UK property transactions (seasonally adjusted) |
|
|
Source: HM Revenue & Customs. Note: Figures for August to October 2021 are provisional. SA = seasonally adjusted. |
Valuation
P/E comparisons with peers remain difficult to interpret given differences in business mix and significant changes in provisioning levels following the initial impact of COVID-19. We therefore frame valuation using our ROE/COE calculations and the price to book ratio. If we assume a COE of 10% and long-term growth of 2%, then the share price at the time of writing (2,673p) would be consistent with an ROE of below 16%, compared with our 16.5% estimate for FY22.
Looking at the history of the price to book ratio (Exhibit 8), the current level of 1.7x is slightly below the 10-year average following a period of recent weakness in the shares (down 8% over a month but still up 37% over 12 months).
|
Exhibit 8: 10-year price to book value history |
|
|
Source: Refinitiv, Edison Investment Research |
Exhibit 9: Financial summary
£'000s |
2018 |
2019 |
2020 |
2021 |
2022e |
2023e |
2024e |
||
Year end 31 January |
|||||||||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
79,781 |
82,970 |
89,939 |
83,761 |
86,484 |
95,158 |
103,738 |
Impairments |
(19,596) |
(16,941) |
(17,220) |
(36,705) |
(11,698) |
(17,294) |
(20,571) |
||
Other cost of sales |
(17,284) |
(15,751) |
(19,872) |
(14,264) |
(18,922) |
(21,559) |
(21,675) |
||
Administration expenses |
(9,629) |
(10,763) |
(12,413) |
(10,576) |
(12,896) |
(13,132) |
(14,316) |
||
EBITDA |
|
|
33,272 |
39,515 |
40,434 |
22,216 |
42,968 |
43,173 |
47,176 |
Depreciation |
|
|
(294) |
(414) |
(450) |
(520) |
(527) |
(487) |
(451) |
Op. profit (incl. share-based payouts pre-except.) |
|
|
32,978 |
39,101 |
39,984 |
21,696 |
42,440 |
42,686 |
46,724 |
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) |
(3,721) |
(4,727) |
(5,680) |
||
Profit before tax |
|
|
30,160 |
34,560 |
35,134 |
18,128 |
38,720 |
37,959 |
41,045 |
Tax |
(5,746) |
(6,571) |
(6,252) |
(3,482) |
(7,357) |
(7,212) |
(9,861) |
||
Profit after tax |
|
|
24,414 |
27,989 |
28,882 |
14,646 |
31,362 |
30,747 |
31,184 |
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 |
258.2 |
253.1 |
256.7 |
EPS - basic (p) |
|
|
203.8 |
233.2 |
239.6 |
120.7 |
258.3 |
253.3 |
256.9 |
Dividend per share (p) |
105.0 |
118.0 |
120.0 |
90.0 |
115.0 |
127.0 |
129.0 |
||
EBITDA margin (%) |
41.7% |
47.6% |
45.0% |
26.5% |
49.7% |
45.4% |
45.5% |
||
Operating margin (before GW and except.) (%) |
41.3% |
47.1% |
44.5% |
25.9% |
49.1% |
44.9% |
45.0% |
||
Return on equity |
16.7% |
17.6% |
16.8% |
8.1% |
16.5% |
14.8% |
13.9% |
||
BALANCE SHEET |
|||||||||
Non-current assets |
|
|
181,015 |
185,383 |
197,806 |
173,413 |
205,170 |
228,083 |
247,250 |
Current assets |
|
|
84,178 |
95,430 |
108,275 |
111,426 |
121,109 |
142,403 |
154,166 |
Total assets |
|
|
265,193 |
280,813 |
306,081 |
284,839 |
326,279 |
370,486 |
401,416 |
Current liabilities |
|
|
(7,927) |
(6,722) |
(7,424) |
(5,309) |
(6,261) |
(6,724) |
(7,052) |
Non current liabilities inc pref |
(104,450) |
(108,724) |
(119,183) |
(98,501) |
(119,878) |
(146,798) |
(161,718) |
||
Net assets |
|
|
152,816 |
165,367 |
179,474 |
181,029 |
200,141 |
216,964 |
232,646 |
NAV per share (p) |
1,276 |
1,375 |
1,493 |
1,490 |
1,648 |
1,786 |
1,916 |
||
CASH FLOW |
|||||||||
Operating cash flow |
|
|
(43,418) |
10,530 |
4,946 |
32,940 |
(7,399) |
(10,955) |
667 |
Net cash from investing activities |
(1,040) |
(785) |
(265) |
(1,112) |
(302) |
(300) |
(300) |
||
Dividends paid |
(11,377) |
(13,080) |
(14,461) |
(13,098) |
(12,268) |
(13,962) |
(15,540) |
||
Other financing (excluding change in borrowing) |
12 |
14 |
14 |
2 |
1 |
0 |
0 |
||
Net cash flow |
|
|
(55,823) |
(3,321) |
(9,766) |
18,732 |
(19,968) |
(25,216) |
(15,173) |
Opening net (debt)/cash |
|
|
(49,167) |
(104,990) |
(108,311) |
(118,077) |
(99,345) |
(119,313) |
(144,530) |
Closing net (debt)/cash |
|
|
(104,990) |
(108,311) |
(118,077) |
(99,345) |
(119,313) |
(144,530) |
(159,702) |
Source: S&U accounts, Edison Investment Research. Note: EPS on a reported basis.
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Research: Investment Companies
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