S&U — FY23 results set to meet expectations

S&U (LSE: SUS)

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Last close As at 25/03/2023

GBP22.75

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Market capitalisation

GBP273m

Research: Financials

S&U — FY23 results set to meet expectations

S&U’s year-end trading update confirmed that trading for both Advantage motor finance and Aspen property bridging has remained excellent since its last update in December. Full-year results, due on 28 March, are expected to meet expectations and be above budget. The economic background and tightened lending criteria are likely to have an impact in FY24, but there is still scope for more measured, responsible growth in S&U’s areas of specialist lending expertise.

Andrew Mitchell

Written by

Andrew Mitchell

Director, Financials

Financials

S&U

FY23 results set to meet expectations

Q423 update

Financial services

10 February 2023

Price

2,100p

Market cap

£255m

Net debt (£m) at end January 2023

192

Shares in issue

12.2m

Free float

27%

Code

SUS

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.0)

(3.0)

(23.9)

Rel (local)

(3.5)

(10.7)

(24.8)

52-week high/low

2810.00p

1905.00p

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 65,000 customers. The Aspen property bridging business has been developing, following its launch in early 2017.

Next events

FY23 results

28 March 2023

Analysts

Andrew Mitchell

+44 (0)20 3077 5700

Martyn King

+44 (0)20 3077 5700

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

S&U’s year-end trading update confirmed that trading for both Advantage motor finance and Aspen property bridging has remained excellent since its last update in December. Full-year results, due on 28 March, are expected to meet expectations and be above budget. The economic background and tightened lending criteria are likely to have an impact in FY24, but there is still scope for more measured, responsible growth in S&U’s areas of specialist lending expertise.

Year end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/21

83.8

18.1

120.7

90.0

17.4

4.3

01/22

87.9

47.0

312.7

126.0

6.7

6.0

01/23e

102.6

41.2

276.2

132.0

7.6

6.3

01/24e

121.0

42.5

265.6

133.0

7.9

6.3

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

Strong end to FY23 and credit quality remains good

Year-end group net receivables were c £420m, up 13% from H123 and a 30% increase over the year. At Advantage, transactions reached nearly 24,000, with volume unaffected by the normal seasonal slowdown in December. Tighter credit criteria and a shift to nearer prime customers have resulted in a higher average loan value (+9% to £7,800), longer average loan term and marginally lower average interest rate. Collections remain strong and above budget (94% of due), while bad debts and voluntary terminations are below budget. Aspen has continued to make progress, but S&U notes a slowing in the housing market, which has prompted increases in Aspen interest rates and loan to value requirements. Repayment quality is good and out of 141 bridging loans there is only one in repossession and four that are more than 60 days overdue.

Dividend, funding and outlook

The second interim dividend is set at 38p (versus 36p). Year net-debt reached £192m (£180m in December) and gearing c 86%. S&U expects to add to its loan facilities of £210m in H124 to allow for further growth, with gearing set to remain within a range the board is comfortable with. Looking ahead, S&U acknowledges the likely low levels of consumer confidence and spending this year in the UK, but still sees good opportunities for responsible lending against this background. Our forecasts are unchanged at this point and already factor in more modest loan growth, increased interest costs and further normalisation of loan loss provisioning for FY24.

Valuation

The shares trade on prospective P/E multiples of 7.6x and 7.9x for FY23 and FY24 respectively, with FY24 earnings reflecting the increase in the corporation tax rate to 25%. The yield is 6%. An ROE/COE model suggests the current share price is consistent with a return on equity (ROE) of 11.6%, which compares with the FY18–22 average of 15.8%, suggesting that the price makes a significant allowance for the uncertain macroeconomic background.

Background indicators

In this section we update the charts we use to provide background indicators for Advantage and Aspen.

Since February 2022 the Treasury-collected compilation of GDP forecasts for 2023 have followed a downward trend (Exhibit 1), but the readings in the last three months have been essentially stable, with the expectation of a shallow recession (GDP down c 0.8%). Average annual inflation (CPI) expectations rose from 2.3% to 5.0%, but, again, have stabilised at this level. Medium-term forecasts published previously pointed to inflation moderating to below 3% by 2025. The forecast for annual average unemployment has risen modestly to 4.5%, underlining the relatively benign expected impact of the contraction this year.

Exhibit 1: Independent economic forecasts for the UK in 2023

Source: HM Treasury

Exhibit 2 shows how consumer confidence has fluctuated since 2019. Confidence recovered strongly following the onset of the pandemic, 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. Confidence was sapped further in the second half of 2022 as inflation hit harder and interest rates rose. Although above its recent low point, the confidence reading remains low and pressures on consumers, including Advantage customers, remain elevated. S&U has previously noted in mitigation that wages are likely to adjust and that its customers tend to depend on their vehicles for transport to work. Advantage continues to make allowance for the rise in inflation within its affordability calculations and to fine-tune its credit criteria.

Exhibit 2: GfK UK consumer confidence indicator

Exhibit 3: UK redundancies and unemployment

Source: Refinitiv (last value January 2023)

Source: ONS (last value November 2022)

Exhibit 2: GfK UK consumer confidence indicator

Source: Refinitiv (last value January 2023)

Exhibit 3: UK redundancies and unemployment

Source: ONS (last value November 2022)

In Exhibit 3 we can see that, after an increase in 2020, the unemployment rate moved below prior levels and remains at a relatively low rate. The level of redundancies, a more immediate measure, saw a very sharp spike as the pandemic took hold, but then fell rapidly and, although there have been increases in the last six-monthly readings, it is still only just approaching pre-pandemic levels.

Next, we look at data on used car transactions and used car finance. Exhibit 4 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 remained a feature in 2022 and the monthly rate of transactions stayed below the 2019 levels. Exhibit 5 shows a similar pattern in used car finance, with seasonal dips evident in addition to lockdown impacts. There were year-on-year increases in the value of loans in each month in 2022 until November, which saw a 6% decline.

Exhibit 4: Monthly used car transactions 2019–22

Exhibit 5: Used car finance through dealerships

Source: SMMT (last value September 2022)

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

Exhibit 4: Monthly used car transactions 2019–22

Source: SMMT (last value September 2022)

Exhibit 5: Used car finance through dealerships

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

Used car prices (see Exhibit 6) experienced a very sharp increase from mid-2021, with strong consumer demand and reduced supply pushing prices up. From February 2022, the index showed small month-on-month decreases (see Exhibit 7), suggesting a slight softening of demand and/or easing of supply constraints. However, this is not clear from the fluctuations seen in more recent months and prices remain at a historically high level. At the margin, an eventual fall in auction prices, 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 6: Second-hand car price index

Exhibit 7: Monthly change in second-hand car prices

Source: ONS CPI Index (last value December 2022)

Source: ONS CPI Index. Note: Month-on-month % change.

Exhibit 6: Second-hand car price index

Source: ONS CPI Index (last value December 2022)

Exhibit 7: Monthly change in second-hand car prices

Source: ONS CPI Index. Note: Month-on-month % change.

Turning to the background for Aspen Bridging, Exhibit 8 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. This is also evident in the number of mortgage approvals (Exhibit 9). The transaction data does not yet capture a slowdown, but mortgage approvals have slowed sharply. Aspen itself expects higher interest rates and more restricted transaction activity to continue during 2023. This has prompted it to increase its own rates and tighten loan to value criteria. 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 offers a bespoke service and has scope for measured expansion now that it is more established in the market.

Exhibit 8: UK property transactions

Exhibit 9: Monthly number of mortgage approvals

Source: HM Revenue & Customs. Note: Seasonally adjusted, to December 2022.

Source: Bank of England. Note: Seasonally adjusted, to December 2022.

Exhibit 8: UK property transactions

Source: HM Revenue & Customs. Note: Seasonally adjusted, to December 2022.

Exhibit 9: Monthly number of mortgage approvals

Source: Bank of England. Note: Seasonally adjusted, to December 2022.


Exhibit 10: Financial summary

£'000s

2018

2019

2020

2021

2022

2023e

2024e

Year end 31 January

PROFIT & LOSS

Revenue

 

 

79,781

82,970

89,939

83,761

87,889

102,587

121,014

Impairments

(19,596)

(16,941)

(17,220)

(36,705)

(4,120)

(15,305)

(21,697)

Other cost of sales

(17,284)

(15,751)

(19,872)

(14,264)

(18,771)

(22,904)

(24,253)

Administration expenses

(9,629)

(10,763)

(12,413)

(10,576)

(13,679)

(15,153)

(16,942)

EBITDA

 

 

33,272

39,515

40,434

22,216

51,319

49,224

58,122

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

48,729

57,664

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)

(7,515)

(15,172)

Profit before tax

 

 

30,160

34,560

35,134

18,128

47,018

41,214

42,492

Tax

(5,746)

(6,571)

(6,252)

(3,482)

(9,036)

(7,663)

(10,233)

Profit after tax

 

 

24,414

27,989

28,882

14,646

37,982

33,551

32,259

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

276.2

265.6

EPS - basic (p)

 

 

203.8

233.2

239.6

120.7

312.8

276.2

265.6

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%

48.0%

48.0%

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

41.3%

47.1%

44.5%

25.9%

57.8%

47.5%

47.7%

Return on equity

16.7%

17.6%

16.8%

8.1%

19.6%

15.6%

13.9%

BALANCE SHEET

Non-current assets

 

 

181,015

185,383

197,806

173,413

184,189

223,424

240,668

Current assets

 

 

84,178

95,430

108,275

111,426

143,040

194,569

209,209

Total assets

 

 

265,193

280,813

306,081

284,839

327,229

417,993

449,877

Current liabilities

 

 

(7,927)

(6,722)

(7,424)

(5,309)

(8,789)

(6,745)

(7,459)

Non current liabilities inc pref

(104,450)

(108,724)

(119,183)

(98,501)

(111,693)

(186,521)

(201,333)

Net assets

 

 

152,816

165,367

179,474

181,029

206,747

224,728

241,085

NAV per share (p)

1,276

1,375

1,493

1,490

1,704

1,852

1,987

CASH FLOW

Operating cash flow

 

 

(43,418)

10,530

4,946

32,940

(2,094)

(55,546)

681

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

2

0

Net cash flow

 

 

(55,823)

(3,321)

(9,766)

18,732

(14,640)

(71,469)

(15,542)

Opening net (debt)/cash

 

 

(49,167)

(104,990)

(108,311)

(118,077)

(99,345)

(113,985)

(185,454)

Closing net (debt)/cash

 

 

(104,990)

(108,311)

(118,077)

(99,345)

(113,985)

(185,454)

(200,996)

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 2023 Edison Investment Research Limited (Edison).

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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

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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.

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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 2023 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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Immix Biopharma has announced interim response rate data from its newly formed subsidiary, Nexcella, concerning the BCMA-targeting cell therapy NXC-201 in multiple myeloma and AL amyloidosis. The data, presented at the 5th European CAR T-cell Meeting, shows a 90% overall response rate (ORR) in 29 patients (of 42 total enrolled) treated with NXC-201 at the recommended Phase II dose (RP2D). This result is comparable to approved BCMA-targeting cell therapies. Importantly, cytokine release syndrome was manageable, and no neurotoxicity was observed at the RP2D (800m cells). In our view, NXC-201’s potential main point of differentiation is its favorable safety profile, which we believe the latest data supports. Immix will continue to investigate NXC-201 as the first potential outpatient CAR T-cell therapy. This announcement follows the recent initiation of patient enrolment in a new Phase Ib/IIa clinical trial, investigating the use of Immix’s lead asset, IMX-110, in combination with tislelizumab (BeiGene/Novartis’s anti-PD-1 antibody) for the treatment of advanced solid tumors.

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