Last close As at 05/08/2026
GBP19.60
▲ 20.00 (1.03%)
Market capitalisation
GBP239m
Research: Financials
S&U’s update indicates trading has remained in line with management expectations but there are some slightly more cautious elements compared with our forecast assumptions at the time of the H120 results. As a result, we have modestly tempered our estimates for FY20/21. Even so, the shares trade prospective earnings multiples of below 9x while the yield is over 5%.
Written by
S&U |
Resilient amid softer sentiment and economy |
Trading update |
Financial services |
11 December 2019 |
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 update indicates trading has remained in line with management expectations but there are some slightly more cautious elements compared with our forecast assumptions at the time of the H120 results. As a result, we have modestly tempered our estimates for FY20/21. Even so, the shares trade on prospective earnings multiples of below 9x while the yield is over 5%.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
01/18 |
79.8 |
30.2 |
202.4 |
105.0 |
10.4 |
5.0 |
01/19 |
89.2 |
34.6 |
232.0 |
118.0 |
9.1 |
5.6 |
01/20e |
97.5 |
35.5 |
239.3 |
124.0 |
8.8 |
5.9 |
01/21e |
106.0 |
39.0 |
261.7 |
128.0 |
8.1 |
6.1 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Trading update July to December
Motor finance receivables Advantage Finance have grown by 2% since the end of H120 (July), still positive but at a slower pace than in the first half (+5.8%). Customer numbers are also up 2% to a record 63,500. The risk-adjusted yield (revenue yield less impairment provision) has improved to 25.2% versus the July level of 24.9% (a rolling 12-month figure as reported by S&U) but this is a smaller improvement than anticipated by the company. This arises from higher than expected impairments from loans made in the period prior to a tightening of credit criteria and lower used car auction prices for recovered vehicles (see BCA auction data overleaf). S&U also notes that in addition to the continuous process of refining the underwriting system, integration of systems with broker partners has improved and the Advantage website has seen significant enhancements. At Aspen the loan book has increased from £24.7m at end-July to £28m. The group cites the continuing impact of political uncertainty in the property market as slowing borrower exits (in line with H1 commentary).
Outlook
A number of indicators have shown some softening including used car prices (as noted), used car transactions, consumer confidence and the incidence of redundancies but the changes are small or very small and the value/volume of used car finance is up for 9M19. Advantage has a track record of managing through market cycles so although it is not immune to economic trends, we would expect it to be resilient to adverse developments. Positively, if the general election were to provide greater certainty, this could be a positive influence on confidence and the environment for both Advantage and Aspen.
Valuation
Our EPS estimates are reduced by nearly 4% for FY20 and FY21 reflecting slightly more conservative risk-adjusted yield and receivables growth assumptions for Advantage. S&U still trades on lower prospective P/Es than the peer group and offers a higher yield than our peer group average.
Market background charts
We have updated a small selection of industry and economic data to provide context for the S&U update and the modest change in our estimates.
Our first two charts track trends in BCA auction price data, which show a softening in prices recently following sustained increases over the period shown. The dealer part-exchange category is most comparable with the vehicles that Advantage finances and the latest reading for October was £5,180, a year-on-year reduction of 2.9%. There is seasonality in auction pricing and as Exhibit 2 shows the BCA prices have been within a relatively narrow band recently. To the extent that these are representative of Advantage’s experience, we would not anticipate a substantial impact from lower prices on recovered vehicles.
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Exhibit 1: BCA auction prices % change y-o-y |
Exhibit 2: Auction prices, dealer part-exchange (£) |
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Source: BCA, Edison Investment Research |
Source: BCA, Edison Investment Research |
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Exhibit 1: BCA auction prices % change y-o-y |
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Source: BCA, Edison Investment Research |
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Exhibit 2: Auction prices, dealer part-exchange (£) |
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Source: BCA, Edison Investment Research |
Exhibit 4 shows changes in used-car transaction volumes and these were down 0.8% in 9M19 compared with the same period last year. New car registrations are not directly relevant for Advantage, but are shown to provide context and to demonstrate the greater volatility they have tended to display; they were down 3% for the same period. The value of used-car finance through dealerships (Exhibit 5) was up 5% for 9M19 while the volume (not shown) was 2% ahead of 9M18.
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Exhibit 3: UK car market trends (volume) |
Exhibit 4: Car finance through dealerships (value) |
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Source: SMMT |
Source: Finance and Leasing Association |
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Exhibit 3: UK car market trends (volume) |
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Source: SMMT |
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Exhibit 4: Car finance through dealerships (value) |
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Source: Finance and Leasing Association |
Indicators for the potential behaviour of the Advantage customer base are UK consumer confidence and redundancy and unemployment measures. While the consumer confidence reading has moved significantly lower since its recent high in 2015, the latest figure is unchanged from the beginning of 2019 so arguably there has been a stabilisation in sentiment. The level of unemployment (regarded as a lagging indicator) has been stable in 2019 at around 3.8% while the rate of redundancies (per 1,000) has shown an increase during the year, starting at 3.3 and rising to 4.3 by September. There would be cause for concern if this trend were to accelerate as this could start to have an impact on impairment levels. However, as Exhibit 7 shows, the incidence of redundancies still remains subdued compared with recent years and much lower than seen during the financial crisis.
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Exhibit 5: GFK UK consumer confidence indicator |
Exhibit 6: UK redundancies and unemployment |
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Source: Bloomberg (last value November 2019) |
Source: Bloomberg (last value September 2019) |
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Exhibit 5: GFK UK consumer confidence indicator |
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Source: Bloomberg (last value November 2019) |
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Exhibit 6: UK redundancies and unemployment |
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Source: Bloomberg (last value September 2019) |
Changes in estimates
The changes we have made to our estimates are limited. As noted earlier, we have assumed a slightly more conservative risk-adjusted yield and lower receivables growth for Advantage and a lower rate of loan book growth for Aspen Bridging. Other assumptions are unchanged. As a result our EPS estimates are reduced by nearly 4% for both FY20 and FY21 (see below and the financial summary on page 4).
Exhibit 7: Changes to estimates
Year-end |
Revenue (£m) |
PBT (£m) |
EPS (p) |
DPS (p) |
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Old |
New |
Change (%) |
Old |
New |
Change (%) |
Old |
New |
Change (%) |
Old |
New |
Change (%) |
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FY20e |
98.0 |
97.5 |
-0.5 |
36.9 |
35.5 |
-3.8 |
248.7 |
239.3 |
-3.8 |
124.0 |
124.0 |
0.0 |
FY21e |
108.2 |
106.0 |
-2.1 |
40.5 |
39.0 |
-3.7 |
271.7 |
261.7 |
-3.7 |
128.0 |
128.0 |
0.0 |
Source: 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 on below average multiples and offers an above average yield. Its historical ROE is above average and, on our revised numbers, will remain close to 17% for both prospective years; meanwhile the price to book multiple is only slightly above the average value.
Exhibit 8: Peer comparison
Price |
Market cap |
P/E 2019 |
P/E 2020 |
Yield |
ROE |
P/BV |
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S&U |
2,110 |
255 |
8.8 |
8.1 |
5.6 |
17.6 |
1.5 |
Close Brothers |
1,507 |
2,278 |
11.2 |
11.0 |
4.4 |
14.9 |
1.6 |
PCF Group |
35 |
86 |
11.5 |
9.0 |
1.2 |
10.8 |
1.5 |
Provident Financial |
421 |
1,065 |
9.0 |
7.9 |
2.4 |
16.1 |
1.5 |
Secure Trust Bank |
1,420 |
262 |
8.1 |
6.8 |
5.8 |
12.7 |
1.1 |
Peer average |
10.0 |
8.7 |
3.4 |
13.6 |
1.4 |
Source: Refinitiv, Edison Investment Research. Note: P/Es adjusted to calendar years. Priced 11 November 2019.
Exhibit 9: 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) |
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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 |
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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) |
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|
19,469 |
25,203 |
30,160 |
34,560 |
35,503 |
39,008 |
Profit before tax (norm) |
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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) |
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|
69,185 |
20,342 |
24,414 |
27,989 |
28,893 |
31,596 |
Profit after tax (norm) |
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|
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) |
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|
576.5 |
169.1 |
202.4 |
232.0 |
239.3 |
261.7 |
EPS - normalised (p) |
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|
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 |
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|
(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 |
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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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ADMIE Holding reported 9M19 results, with net income up 12% y-o-y, and said that IPTO’s 2019 development capex plan is being implemented in a timely manner. We believe the stock continues to trade at an excessive discount to peers and to the implied regulated asset base (RAB) value. Such a discount would only be justified if allowed regulatory returns were significantly below the actual cost of capital, which we believe is not the case. Our valuation of ADMIE Holding is broadly unchanged at €2.89/share and is roughly in line with the RAB value implied by IPTO.