Last close As at 05/08/2026
GBP19.60
▲ 20.00 (1.03%)
Market capitalisation
GBP239m
Research: Financials
Lockdowns have held back the level of S&U’s motor finance transactions and receivables, but property bridging has seen a stronger end to the year than expected. Both businesses report strong demand and for motor finance the benefits of tighter credit criteria and a prospective recovery in lending volumes should become progressively more apparent during FY22 and FY23.
Written by
S&U |
Planning for a significant rebound |
Q421 trading update |
Financial services |
15 February 2021 |
Share price performance
Business description
Next events
Analysts
S&U is a research client of Edison Investment Research Limited |
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Lockdowns have held back the level of S&U’s motor finance transactions and receivables, but property bridging has seen a stronger end to the year than expected. Both businesses report strong demand and for motor finance the benefits of tighter credit criteria and a prospective recovery in lending volumes should become progressively more apparent during FY22 and FY23.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
01/20 |
89.9 |
35.1 |
239.4 |
120.0 |
9.5 |
5.3 |
01/21e |
82.0 |
18.4 |
122.7 |
90.0 |
18.6 |
3.9 |
01/22e |
82.0 |
23.8 |
158.9 |
100.0 |
14.3 |
4.4 |
01/23e |
92.9 |
31.4 |
209.9 |
110.0 |
10.9 |
4.8 |
Note: *PBT and EPS are reported. EPS are diluted.
FY21 year-end update
S&U’s year-end update covers the period from the 9 December update to the end of January. Advantage motor finance has continued to see strong demand with record loan application numbers. Prudent underwriting criteria meant that the H221 level of new transactions was similar to H121 giving a total for the year of c 15,600, compared with the pre-COVID-19 level of 23,300 for FY20. In the last two months of the year transactions were on a rising trend and reached nearly 80% of the prior year period. Collections remain strong; January saw 90% of contractual payments made and customers on payment holiday are down to below 4,000 from a peak of 15,000. Year-end net receivables stood at £247m compared with £250m in December and £281m at end FY20. Aspen property bridging is making strong progress, benefiting from a resilient residential market and the growing experience and reputation of the business. Net receivables at Aspen stood at £34m compared with £29.6m in December and £21m at end FY20. New transactions have been ahead of budget and the pipeline has more than doubled. Credit quality is good with only three of 60 customers slightly beyond term at end-January. Experienced new staff have been added to support growth. Reflecting confidence in the outlook, a second interim dividend of 25p (FY20: 36p) is to be paid giving a total to date of 47p (70p).
Looking for a significant rebound in motor finance
Looking ahead, the group is planning for a strong rebound in motor finance transaction volume once lockdown restrictions ease and also a substantial increase in Aspen lending. Given the bounce back seen in motor finance between lockdowns and the resilience of the residential property market thus far, this seems a reasonable expectation, although there are clearly still uncertainties over the timing of improvements. Changes in our estimates are modest (see Exhibit 7).
Valuation
The shares trade on a price to book ratio of 1.6x, implying a return on equity (ROE) of 14.6%, above our estimate of 13% for FY23, but below the historical five-year average of over 16%.
Background and outlook
As in previous notes, this section provides updates on some of the indicators we monitor when assessing trends in the markets for the Advantage and Aspen businesses.
Exhibit 1 shows forecasts for UK GDP and unemployment as collected by the UK Treasury. Focusing on 2021, GDP forecasts are lower than they were when compared with the November figures included in our last note, with the low estimate switching from a small positive to a contraction. On the other hand, the unemployment forecasts are slightly lower than in November, perhaps supported by an expectation that a successful vaccination programme will minimise further restrictions by the end of calendar 2021, bolstering business confidence and hence job retention. For Advantage, a key sensitivity is unemployment, so any potential softening in the peak level of unemployment against earlier expectations could be helpful (subject to the actual incidence of unemployment in the customer base).
Exhibit 1: Comparison of independent economic forecasts for the UK (January)
% |
Average |
Average of new forecasts |
Low |
High |
GDP growth |
||||
2020 |
-10.7 |
-10.6 |
-11.4 |
-10.0 |
2021 |
4.5 |
4.4 |
-3.0 |
6.1 |
Labour Force Survey unemployment rate Q4 |
||||
2020 |
5.6 |
5.3 |
4.6 |
7.1 |
2021 |
6.7 |
6.4 |
4.6 |
8.0 |
Source: HM Treasury
Exhibit 2 shows that, unsurprisingly, consumer confidence has remained at relatively low levels during the current lockdown. Prospectively, positive trends in infections and related data with the build-up of the vaccination programme should have a positive effect on confidence. Exhibit 3 shows that the unemployment rate has started to move up, although it is a lagging indicator and is still being cushioned by government job protection measures. Redundancies have shown a substantial increase but may subside quite rapidly once economic recovery is underway. Unemployment is likely to worsen before easing given the economic forecasts shown above.
|
Exhibit 2: GfK UK consumer confidence indicator |
Exhibit 3: UK redundancies and unemployment |
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|
|
Source: Bloomberg (last value November 2020) |
Source: Bloomberg (last value November 2020) |
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Exhibit 2: GfK UK consumer confidence indicator |
|
|
Source: Bloomberg (last value November 2020) |
|
Exhibit 3: UK redundancies and unemployment |
|
|
Source: Bloomberg (last value November 2020) |
Next are data on used car transactions and used car finance. Exhibit 4 shows the sharp drop in used car transactions in the first half of calendar 2020 when compared with the monthly figures for the prior two years. The striking point here is how well volume recovered following the initial lockdown, albeit with a dip in Q4 coinciding with the second lockdown. Exhibit 5 tells a similar story for used car finance.
|
Exhibit 4: Used car transactions 2018, 2019 and 2020 |
Exhibit 5: Used car finance through dealerships |
|
|
|
Source: SMMT, Edison Investment Research |
Source: Finance and Leasing Association. Note: By volume. |
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Exhibit 4: Used car transactions 2018, 2019 and 2020 |
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Source: SMMT, Edison Investment Research |
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Exhibit 5: Used car finance through dealerships |
|
|
Source: Finance and Leasing Association. Note: By volume. |
As far as used car prices are concerned, these have been buoyant in 2020 and early 2021 with strong consumer demand and reduced supply pushing prices up, with the Autotrader retail price index showing like-for-like increases of over 7% y-o-y in the six months to February. However, auctioneers Aston Barclay, for example, have previously suggested some normalisation in the market as supply increases. Prospectively, 2021 could see some further weakening if repossessions rise significantly.1 Nevertheless, Advantage’s exposure to lower auction prices on repossessions is limited by the relatively low value of the vehicles it finances (average loan in H121: £6,500).
On this front the FCA has guided that consumer credit firms can repossess goods and vehicles from end January 2021 but only as a last resort and where appropriate. The FCA notes that given depreciation of a good or vehicle some customers could end up owing more in the longer term if repossessions were prevented.
Turning to Aspen property bridging, Exhibit 6 shows the number of UK non-residential and residential transactions, with residential being most relevant for Aspen. Both have seen an extended post lockdown bounce with a stronger move evident for residential transactions. While these figures show the broad market background for transactions, as a small business Aspen should have significant scope for expansion as it is now more established in the market and has gained experience having lent more than £100m since it was founded.
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Exhibit 6: UK property transactions (seasonally adjusted) |
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Source: HM Revenue & Customs. Note: Figures for October to December 2020 are provisional. |
Changes in estimates
Changes in our estimates are modest (Exhibit 7). For FY22 the reduction mainly reflects a lower than expected level of receivables at the start of the year and an expectation that first half transaction numbers will be more subdued than previously assumed because of the current lockdown. For FY23 we have allowed for a marginally stronger bounce back. Assumed revenue for Aspen is slightly higher than our previous forecast, reflecting the positive commentary in the update.
Exhibit 7: Changes to estimates
Year-end |
Revenue (£m) |
PBT (£m) |
EPS (p) |
DPS (p) |
||||||||
Old |
New |
Change (%) |
Old |
New |
Change (%) |
Old |
New |
Change (%) |
Old |
New |
Change (%) |
|
FY21e |
81.5 |
82.0 |
0.6% |
18.4 |
18.4 |
-0.2% |
122.9 |
122.7 |
-0.2% |
90.0 |
90.0 |
0.0% |
FY22e |
82.9 |
82.0 |
-1.1% |
24.9 |
23.8 |
-4.2% |
165.9 |
158.9 |
-4.2% |
100.0 |
100.0 |
0.0% |
FY23e |
91.5 |
92.9 |
1.5% |
31.2 |
31.4 |
0.9% |
208.0 |
209.9 |
0.9% |
110.0 |
110.0 |
0.0% |
Source: Edison Investment Research
Exhibit 8 provides a summary of key elements of our forecasts. Sensitivities to acknowledge include the point that delays in lockdown easing could result in a lower level of transactions for Advantage and a lower average loan book than we have assumed. This could also have some effect on profit recognition in FY23. At Aspen we have assumed a significant step up in loan book for FY22 and FY23, which may not be realised if market conditions mean that the new business available becomes less attractive.
Exhibit 8: Estimate summary
Year-end January (£000) |
FY20 |
FY21e |
FY22e |
FY23e |
Number of new motor loans |
23,334 |
15,600 |
21,500 |
23,100 |
Motor finance receivables at period end |
280,757 |
246,604 |
267,320 |
290,750 |
Bridging receivables at period end |
20,993 |
34,000 |
60,000 |
100,000 |
Revenue |
||||
Motor finance |
85,465 |
78,166 |
74,592 |
79,770 |
Property bridging |
4,474 |
3,804 |
7,395 |
13,175 |
Total |
89,939 |
81,970 |
81,987 |
92,945 |
Impairments |
||||
Motor finance |
(16,507) |
(33,572) |
(21,731) |
(19,384) |
Property bridging |
(713) |
(653) |
(1,183) |
(2,108) |
Total |
(17,220) |
(34,225) |
(22,914) |
(21,492) |
Other cost of sales |
(19,872) |
(13,979) |
(19,428) |
(20,968) |
Administration expenses |
(12,413) |
(10,935) |
(11,192) |
(12,734) |
EBITDA |
40,434 |
22,830 |
28,453 |
37,752 |
Depreciation |
(450) |
(561) |
(565) |
(500) |
Operating profit / loss |
39,984 |
22,269 |
27,888 |
37,252 |
Finance expense |
(4,850) |
(3,861) |
(4,086) |
(5,805) |
Pre-tax profit |
35,134 |
18,408 |
23,802 |
31,447 |
Tax |
(6,252) |
(3,524) |
(4,522) |
(5,975) |
Net profit |
28,882 |
14,884 |
19,280 |
25,472 |
EPS fully diluted (p) |
239.4 |
122.7 |
158.9 |
209.9 |
Dividend per share (p) |
120.0 |
90.0 |
100.0 |
110.0 |
Source: Company accounts, Edison Investment Research
Valuation
P/E comparisons with peers remain difficult to interpret given the impact of forward-looking provisions in the post-COVID-19 period so we continue to frame a valuation using 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 (2,280p) would be consistent with an ROE of 14.6%, above the 10.4% and 13.0% we estimate for FY22 and FY23 respectively. Arguably, our FY23 estimate might not reflect a full recovery from the impact of COVID-19 and historically S&U has achieved higher returns on equity (the historical five-year average is over 16%).
Exhibit 9: Financial summary
£'000s |
2017 |
2018 |
2019 |
2020 |
2021e |
2022e |
2023e |
||
Year end 31 January |
|||||||||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
60,521 |
79,781 |
82,970 |
89,939 |
81,970 |
81,987 |
92,945 |
Impairments |
(12,194) |
(19,596) |
(16,941) |
(17,220) |
(34,225) |
(22,914) |
(21,492) |
||
Other cost of sales |
(12,871) |
(17,284) |
(15,751) |
(19,872) |
(13,979) |
(19,428) |
(20,968) |
||
Administration expenses |
(8,332) |
(9,629) |
(10,763) |
(12,413) |
(10,935) |
(11,192) |
(12,734) |
||
EBITDA |
|
|
27,124 |
33,272 |
39,515 |
40,434 |
22,830 |
28,453 |
37,752 |
Depreciation |
|
|
(253) |
(294) |
(414) |
(450) |
(561) |
(565) |
(500) |
Op. profit (incl. share-based payouts pre-except.) |
|
|
26,871 |
32,978 |
39,101 |
39,984 |
22,269 |
27,888 |
37,252 |
Exceptionals |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Non-recurring items |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Investment revenues / finance expense |
(1,668) |
(2,818) |
(4,541) |
(4,850) |
(3,861) |
(4,086) |
(5,805) |
||
Profit before tax |
|
|
25,203 |
30,160 |
34,560 |
35,134 |
18,408 |
23,802 |
31,447 |
Tax |
(4,861) |
(5,746) |
(6,571) |
(6,252) |
(3,524) |
(4,522) |
(5,975) |
||
Profit after tax |
|
|
20,342 |
24,414 |
27,989 |
28,882 |
14,884 |
19,280 |
25,472 |
Average Number of Shares Outstanding (m) |
12.0 |
12.1 |
12.1 |
12.1 |
12.1 |
12.1 |
12.1 |
||
Diluted EPS (p) |
|
|
169.1 |
202.4 |
232.0 |
239.4 |
122.7 |
158.9 |
209.9 |
EPS - basic (p) |
|
|
170.7 |
203.8 |
233.2 |
239.6 |
122.8 |
159.0 |
210.1 |
Dividend per share (p) |
91.0 |
105.0 |
118.0 |
120.0 |
90.0 |
100.0 |
110.0 |
||
EBITDA margin (%) |
44.8% |
41.7% |
47.6% |
45.0% |
27.9% |
34.7% |
40.6% |
||
Operating margin (before GW and except.) (%) |
44.4% |
41.3% |
47.1% |
44.5% |
27.2% |
34.0% |
40.1% |
||
Return on equity |
15.2% |
16.7% |
17.6% |
16.8% |
8.3% |
10.4% |
13.0% |
||
BALANCE SHEET |
|||||||||
Non-current assets |
|
|
138,004 |
181,015 |
185,383 |
197,806 |
187,166 |
217,560 |
259,007 |
Current assets |
|
|
57,763 |
84,178 |
95,430 |
108,275 |
99,092 |
115,110 |
137,206 |
Total assets |
|
|
195,767 |
265,193 |
280,813 |
306,081 |
286,257 |
332,670 |
396,212 |
Current liabilities |
|
|
(17,850) |
(7,927) |
(6,722) |
(7,424) |
(3,576) |
(3,788) |
(4,180) |
Non current liabilities inc pref |
(38,450) |
(104,450) |
(108,724) |
(119,183) |
(101,397) |
(140,111) |
(189,825) |
||
Net assets |
|
|
139,467 |
152,816 |
165,367 |
179,474 |
181,284 |
188,771 |
202,207 |
NAV per share (p) |
1,177 |
1,276 |
1,375 |
1,493 |
1,508 |
1,570 |
1,682 |
||
CASH FLOW |
|||||||||
Operating cash flow |
|
|
(27,431) |
(43,418) |
10,530 |
4,946 |
32,315 |
(26,729) |
(37,271) |
Net cash from investing activities |
(308) |
(1,040) |
(785) |
(265) |
(1,106) |
(250) |
(250) |
||
Dividends paid |
(9,548) |
(11,377) |
(13,080) |
(14,461) |
(13,104) |
(11,883) |
(12,125) |
||
Other financing (excluding change in borrowing) |
21 |
12 |
14 |
14 |
2 |
0 |
0 |
||
Net cash flow |
|
|
(37,266) |
(55,823) |
(3,321) |
(9,766) |
18,107 |
(38,861) |
(49,646) |
Source: S&U accounts, Edison Investment Research
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|
Research: TMT
Ebiquity’s pre-close trading update indicates recovery as expected in H220, from both a pick-up in demand from existing clients and a good performance in winning new business. The group therefore returned to profit in the second half, leaving it with a small adjusted operating loss for the full year, slightly below our earlier estimate of a small profit. The performance on net debt was better than our modelling, with the group ending the year with net debt of £7.7m (Edison estimate £8.8m). Ebiquity’s share price has not kept pace with those of the UK-based agencies since our November Outlook report, exaggerating the rating differential.