Last close As at 05/08/2026
GBP19.60
▲ 20.00 (1.03%)
Market capitalisation
GBP239m
Research: Financials
S&U’s year-end trading update signalled that FY20 results are set to be in line with management expectations. It is encouraging that there has been a post-election improvement in transactions at both Advantage and Aspen, while used-car prices have stabilised or increased recently. Our estimates are unchanged and the shares trade on a sub-10x P/E and yield of 5%.
Written by
S&U |
Encouraging year-end update |
FY20 trading update |
Financial services |
12 February 2020 |
Share price performance
Business description
Next events
Analysts
S&U is a research client of Edison Investment Research Limited |
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S&U’s year-end trading update signalled that FY20 results are set to be in line with management expectations. It is encouraging that there has been a post-election improvement in transactions at both Advantage and Aspen, while used-car prices have stabilised or increased recently. Our estimates are unchanged and the shares trade on a sub-10x P/E and yield of 5%.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
01/18 |
79.8 |
30.2 |
202.4 |
105.0 |
11.8 |
4.4 |
01/19 |
89.2 |
34.6 |
232.0 |
118.0 |
10.3 |
5.0 |
01/20e |
97.5 |
35.5 |
239.3 |
124.0 |
9.9 |
5.2 |
01/21e |
106.0 |
39.0 |
261.7 |
128.0 |
9.1 |
5.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
FY20 trading statement
In addition to indicating ‘in-line’ expected FY20 results in March, S&U reported that Advantage motor finance ended the year with net receivables of c £280m (+8% vs FY19) and new transactions of 23,300 (+11%), both similar to our estimate. Nothing was added to the December comment on risk-adjusted yield (25.2%) so this is likely to have been similar at the year end, with further benefits of the tightening of credit criteria likely to flow through this year. At Aspen property bridging, repayments have improved, with £15m received in Q420. This contributed to a reduction in gross debt from £132m in December to £118m at year end leaving significant headroom for growth at both Advantage and Aspen. The second interim dividend is increased to 36p (35p) giving a total to date of 70p (+4.5%).
Outlook
As we show overleaf, UK consumer confidence improved following the general election while unemployment remains at historically low levels. The rate of redundancies did increase during 2019 but remains subdued and has stabilised in the more recent readings (to November). These trends are broadly supportive for Advantage and taken together with the relative resilience of the used car market (9M19 sales down less than 1%) are supportive of the group’s expectation of another record result in FY21 for Advantage. The improved level of repayments at Aspen is likely to result in a lower year-end loan book than we had assumed (we estimate c £20m vs £28m); while this makes our estimated average FY21 lending and revenue levels more ambitious, the earnings impact of a shortfall is unlikely to be material. Stronger collections have increased confidence in the prospects for the business and we expect further investment (on appropriate criteria) to expand the loan book to a more material size over several years.
Valuation
S&U trades on P/E and price to book multiples at a modest premium to its peer group average (see page 3) but earns a higher ROE and offers an FY20e yield of over 5%.
Background charts
As noted earlier, we monitor UK consumer confidence and redundancy and unemployment measures as indicators for the potential behaviour of the Advantage customer base. While consumer confidence is still below its high in 2015 (GFK index, Exhibit 1), the latest figure, for January, is noticeably above the average level seen in 2019. The level of unemployment (regarded as a lagging indicator) was stable in 2019 at around 3.8%, whereas the rate of redundancies (per 1,000) increased to 4.3 by September then stabilised with the November reading being 4.2.
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Exhibit 1: GFK UK consumer confidence indicator |
Exhibit 2: UK redundancies and unemployment |
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Source: Bloomberg (last value January 2020) |
Source: Bloomberg (last value November 2019) |
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Exhibit 1: GFK UK consumer confidence indicator |
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Source: Bloomberg (last value January 2020) |
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Exhibit 2: UK redundancies and unemployment |
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Source: Bloomberg (last value November 2019) |
The trend in the value of used-car finance through dealerships is shown in Exhibit 3. Growth has been at a lower rate than in earlier periods, but for 2019 to end November the value and volume of loans increased by 4.4% and 1.8% y-o-y respectively against the background of overall used-car transactions being virtually unchanged.
Exhibit 4 shows the level and year-on-year change of dealer part-exchange prices at BCA auctions. Reduced prices realised for recovered vehicles were referenced in S&U’s December update as a small negative but, in tune with the BCA data, it now notes prices have stabilised or even increased. It quotes Motor Finance magazine’s report of an overall increase in used car prices of 6.4% in 2019 while auction house Aston Barclay indicates that all segments saw price increases between Q3 and Q4 with the dealer exchange category (closest to the value of vehicle financed by Advantage) seeing the largest increase at 8.5%.
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Exhibit 3: Used car finance through dealerships |
Exhibit 4: BCA auction prices, dealer part-exchange |
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Source: Finance and Leasing Association. Note: By value. |
Source: BCA, Edison Investment Research |
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Exhibit 3: Used car finance through dealerships |
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Source: Finance and Leasing Association. Note: By value. |
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Exhibit 4: BCA auction prices, dealer part-exchange |
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Source: BCA, Edison Investment Research |
Valuation
An updated version of our peer comparison table is shown below. This includes companies with an exposure to motor finance and non-standard lending. S&U trades modestly above the average P/Es for calendar years 2019 and 2020. Its historical ROE is above average and, on our estimates, will remain close to 17% for both prospective years; meanwhile the price-to-book multiple is only slightly above the average value. The dividend yield of 5% is above average.
Exhibit 5: Peer comparison
Price |
Market cap |
P/E 2019 |
P/E 2020 |
Yield |
ROE |
P/BV |
|
S&U |
2,380 |
288 |
10.0 |
9.2 |
5.0 |
17.6 |
1.7 |
Close Brothers |
1,450 |
2,188 |
10.9 |
10.7 |
4.6 |
14.9 |
1.6 |
PCF Group |
36 |
90 |
9.4 |
7.2 |
1.1 |
12.6 |
1.5 |
Provident Financial |
477 |
1,204 |
9.0 |
7.9 |
2.1 |
16.1 |
1.7 |
Secure Trust Bank |
1,600 |
297 |
7.8 |
6.6 |
5.2 |
12.7 |
1.2 |
Peer average |
9.3 |
8.1 |
3.2 |
14.1 |
1.5 |
Source: Refinitiv, Edison Investment Research. Note: P/Es adjusted to calendar years. Priced 12 February 2020.
For reference we show the recent share price performance for the peer group. Following a positive response to the trading update S&U has performed ahead of the average for all the periods shown, while still being slightly shy of its 12 month high.
Exhibit 6: Peer group share price performance
|
1 month |
3 months |
1 year |
YTD |
From 12m high |
S&U |
12.3 |
13.3 |
11.2 |
12.8 |
-3.3 |
Close Brothers |
-9.0 |
2.2 |
-0.5 |
-9.3 |
-12.8 |
PCF Group |
5.9 |
0.0 |
-1.1 |
2.9 |
-7.3 |
Provident Financial |
14.0 |
9.1 |
-5.6 |
4.2 |
-25.1 |
Secure Trust Bank |
1.3 |
12.7 |
15.9 |
0.0 |
-7.5 |
Average |
3.0 |
6.0 |
2.2 |
-0.5 |
-13.2 |
Source: Source: Refinitiv, Edison Investment Research
Exhibit 7: Financial summary
£'000s |
2016 |
2017 |
2018 |
2019 |
2020e |
2021e |
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Year end 31 January |
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PROFIT & LOSS |
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Revenue |
|
|
45,182 |
60,521 |
79,781 |
89,215 |
97,535 |
105,993 |
Impairments |
(7,611) |
(12,194) |
(19,596) |
(23,186) |
(24,604) |
(25,859) |
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Other cost of sales |
(8,980) |
(12,871) |
(17,284) |
(15,751) |
(19,725) |
(21,199) |
||
Administration expenses |
(7,131) |
(8,332) |
(9,629) |
(10,763) |
(12,266) |
(13,461) |
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EBITDA |
|
|
21,460 |
27,124 |
33,272 |
39,515 |
40,940 |
45,474 |
Depreciation |
|
|
(209) |
(253) |
(294) |
(414) |
(475) |
(555) |
Op. profit (incl. share-based payouts pre-except.) |
|
|
21,251 |
26,871 |
32,978 |
39,101 |
40,465 |
44,919 |
Exceptionals |
0 |
0 |
0 |
0 |
0 |
0 |
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Non recurring items |
0 |
0 |
0 |
0 |
0 |
0 |
||
Investment revenues / finance expense |
(1,782) |
(1,668) |
(2,818) |
(4,541) |
(4,962) |
(5,911) |
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Profit before tax (FRS 3) |
|
|
19,469 |
25,203 |
30,160 |
34,560 |
35,503 |
39,008 |
Profit before tax (norm) |
|
|
19,469 |
25,203 |
30,160 |
34,560 |
35,503 |
39,008 |
Tax |
(3,583) |
(4,861) |
(5,746) |
(6,571) |
(6,610) |
(7,411) |
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Discontinued business after tax |
53,299 |
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Profit after tax (FRS 3) |
|
|
69,185 |
20,342 |
24,414 |
27,989 |
28,893 |
31,596 |
Profit after tax (norm) |
|
|
15,886 |
20,342 |
24,414 |
27,989 |
28,893 |
31,596 |
Average Number of Shares Outstanding (m) |
12.0 |
12.0 |
12.1 |
12.1 |
12.1 |
12.1 |
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Diluted EPS (p) |
|
|
576.5 |
169.1 |
202.4 |
232.0 |
239.3 |
261.7 |
EPS - normalised (p) |
|
|
132.4 |
169.1 |
202.4 |
232.0 |
239.3 |
261.7 |
Dividend per share (p) |
201.0 |
91.0 |
105.0 |
118.0 |
124.0 |
128.0 |
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EBITDA margin (%) |
47.5% |
44.8% |
41.7% |
44.3% |
42.0% |
42.9% |
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Operating margin (before GW and except.) (%) |
47.0% |
44.4% |
41.3% |
43.8% |
41.5% |
42.4% |
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Return on equity |
15.2% |
15.2% |
16.7% |
17.6% |
16.8% |
16.8% |
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BALANCE SHEET |
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Non-current assets |
|
|
103,653 |
138,004 |
181,015 |
185,383 |
211,443 |
231,955 |
Current assets |
|
|
61,903 |
57,763 |
84,178 |
95,430 |
108,995 |
121,301 |
Total assets |
|
|
165,556 |
195,767 |
265,193 |
280,813 |
320,438 |
353,256 |
Current liabilities |
|
|
(6,850) |
(17,850) |
(7,927) |
(6,722) |
(7,784) |
(8,064) |
Non-current liabilities inc pref |
(30,450) |
(38,450) |
(104,450) |
(108,724) |
(132,801) |
(148,701) |
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Net assets |
|
|
128,256 |
139,467 |
152,816 |
165,367 |
179,853 |
196,491 |
NAV per share (p) |
1,084 |
1,177 |
1,276 |
1,375 |
1,496 |
1,634 |
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CASH FLOW |
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Operating cash flow |
|
|
(16,017) |
(27,431) |
(43,418) |
10,530 |
(4,334) |
2,276 |
Net cash from investing activities |
80,716 |
(308) |
(1,040) |
(785) |
(625) |
(860) |
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Dividends paid |
(23,090) |
(9,548) |
(11,377) |
(13,080) |
(14,453) |
(15,088) |
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Other financing (excluding change in borrowing) |
55 |
21 |
12 |
14 |
7 |
0 |
||
Net cash flow |
|
|
41,664 |
(37,266) |
(55,823) |
(3,321) |
(19,405) |
(13,672) |
Opening net (debt)/cash |
|
|
(53,565) |
(11,901) |
(49,167) |
(104,990) |
(108,311) |
(127,716) |
Closing net (debt)/cash |
|
|
(11,901) |
(49,167) |
(104,990) |
(108,311) |
(127,716) |
(141,389) |
Source: S&U, Edison Investment Research. Note: FY16 dividend per share includes exceptional payment of 125p.
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A reassuring year-end update confirms Walker Greenbank’s FY20 ended in line with management expectations. There do not appear to have been any major changes in market conditions in H2 for each of the three reporting regions. Going into FY21, a progressive strategy roll-out by the new management team will set the scene for future growth aspirations. Our estimates are unchanged and the company’s P/E remains below 10x.