Last close As at 05/08/2026
GBP19.60
▲ 20.00 (1.03%)
Market capitalisation
GBP239m
Research: Financials
S&U motor finance sales are recovering even as credit criteria have been tightened. There is still uncertainty about the impact of the wind down of employment support schemes and how collections will recover following repayment holidays, but S&U expresses cautious optimism on the latter point. The current year results will be significantly affected by lower sales and higher arrears but management indicates the group is still profitable, is maintaining its high customer service levels and has liquidity headroom to respond once it is sensible to target stronger growth.
Written by
S & U |
Still in profit and tentative positive trends |
H121 trading update |
Financial services |
12 August 2020 |
Share price performance
Business description
Next events
Analysts
S & U is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
S&U motor finance sales are recovering even as credit criteria have been tightened. There is still uncertainty about the impact of the wind down of employment support schemes and how collections will recover following repayment holidays, but S&U expresses cautious optimism on the latter point. The current year results will be significantly affected by lower sales and higher arrears but management indicates the group is still profitable, is maintaining its high customer service levels and has liquidity headroom to respond once it is sensible to target stronger growth.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
01/17 |
60.5 |
25.2 |
169.1 |
91.0 |
9.5 |
5.7 |
01/18 |
79.8 |
30.2 |
202.4 |
105.0 |
7.9 |
6.6 |
01/19 |
83.0 |
34.6 |
232.0 |
118.0 |
6.9 |
7.4 |
01/20 |
89.9 |
35.1 |
239.4 |
120.0 |
6.7 |
7.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Gradual improvement continues
In its H121 update, S&U reported that Advantage motor finance has experienced record application levels recently, but tightened credit criteria have moderated the recovery in sales, which are running at 80% of normal levels (versus 40% in June and 15% in April). FCA-mandated customer repayment holidays have involved 26% of Advantage customers resulting in collections at a level of just over 75% of due compared with the normal 94%. With the FCA proposing further repayment holidays of up to three months and the unwinding of the furlough scheme underway, the pace and degree to which repayments will resume is uncertain. S&U says early indications are encouraging. Also encouraging are the early repayment data from new customers pointing to potential medium-term benefits as the portfolio mix gradually changes. At Aspen (property bridging) there has also been an increase in both new transactions and loan redemptions leaving net receivables at £19m versus £15.5m in June.
Outlook still unclear
As in June, the unpredictable course of the pandemic and related economic effects cloud the outlook. The prospects for UK unemployment are important for Advantage and here the latest Bank of England monetary policy report, for example, looks for a less severe year-end level of unemployment than previously. There is still a wide range of potential outcomes and in the circumstances S&U does not feel it is appropriate to provide future guidance.
Valuation
At a price of 1,600p an ROE/COE model indicates the market is assuming S&U will earn a sustainable return on equity (ROE) of under 11%, conservative in relation to the five-year average of over 16% but understandably so at a time of considerable uncertainty.
Background and outlook
In this section we update charts showing background indicators for Advantage Finance and, with reference to Aspen, the rate of UK property transactions.
Exhibit 1 indicates that, on the latest reading, consumer confidence has moved up from its recent low point but still has some way to go. In Exhibit 2, the unemployment rate has yet to move significantly. It is normally a lagging indicator and has also been cushioned in the current crisis by government job protection measures. The Bank of England’s monetary policy report, referenced earlier, includes estimates of the number of those included in the Coronavirus Job Retention Scheme (CJRS), which has cumulatively involved 9.5 million individuals. At its maximum point it included over seven million in May and it had an average of six million in calendar Q2, is assumed to average two million in Q3 and about one million in its final month, October. This both underlines the scale of the threat to the economy as the scheme ends but also the fact that many employees have already returned from furlough. As mentioned, the Bank of England has reduced its expectation for the year-end unemployment rate to 7.5% (the calendar Q2 rate was 3.9%) taking into account the evolution of both the CJRS and the Self-Employment Income Support Scheme (cumulative total 2.7 million participants).
|
Exhibit 1: GFK UK consumer confidence indicator |
Exhibit 2: UK redundancies and unemployment |
|
|
|
Source: Bloomberg (last value July 2020) |
Source: Bloomberg (last value June 2020) |
|
Exhibit 1: GFK UK consumer confidence indicator |
|
|
Source: Bloomberg (last value July 2020) |
|
Exhibit 2: UK redundancies and unemployment |
|
|
Source: Bloomberg (last value June 2020) |
Exhibits 3 and 4 track used car transactions, new car registrations and used car finance volumes. All have followed a similar path through the lockdown with new car registrations showing greater volatility in both directions, as in previous periods.
|
Exhibit 3: Used car transactions and new registrations |
Exhibit 4: Used car finance through dealerships |
|
|
|
Source: SMMT, Edison Investment Research |
Source: Finance and Leasing Association. Note: By volume. |
|
Exhibit 3: Used car transactions and new registrations |
|
|
Source: SMMT, Edison Investment Research |
|
Exhibit 4: Used car finance through dealerships |
|
|
Source: Finance and Leasing Association. Note: By volume. |
Exhibit 5, UK property transactions, shows that there has also been a post-lockdown bounce in property activity, albeit not as great as that seen in motor transactions. As noted earlier Aspen has seen increased activity both in new loans and redemptions. As a relatively new business we expect it will continue to take a conservative approach, balancing the aim of increased scale with the importance of preserving capital.
|
Exhibit 5: UK property transactions (seasonally adjusted) |
|
|
Source: Bloomberg |
Since the June update, group debt increased by £10m to £108m at end July reflecting the combination of paying the final dividend (£6.1m) and a small increase in sales growth at Advantage Finance. Existing committed facilities of £130m provide liquidity headroom.
Valuation
Given continuing uncertainty and in the absence of guidance from S&U we have not included forecasts in this report. The updated version of our peer comparison table shown below therefore still only shows calendar 2019 P/E ratios. The table includes companies with an exposure to motor finance and non-standard lending. S&U’s historical P/E is just below the peer average and the yield is above average. Its historical ROE and price to book (P/BV) multiples are above the peer average, while an ROE/COE model (with assumed growth of 3% and cost of equity (COE) of 10%) would require an assumed ROE of c 10.5% to match the share price at the time of writing (1,600p) given the company’s book value. Although near-term results are likely to be significantly affected by the pandemic, greater confidence in the medium-term outlook could prompt a significant revaluation (as for others in the comparison).
Exhibit 6: Peer comparison
Price |
Market cap |
P/E 2019 |
Yield |
ROE |
P/BV |
|
S&U |
1,600 |
194 |
6.7 |
7.5 |
16.8 |
1.1 |
Close Brothers |
1,127 |
1,703 |
15.5 |
5.9 |
14.9 |
1.2 |
PCF Group |
19 |
46 |
5.1 |
2.2 |
12.6 |
0.8 |
Provident Financial |
187 |
474 |
4.0 |
4.8 |
18.2 |
0.6 |
Secure Trust Bank |
670 |
125 |
3.8 |
3.0 |
13.5 |
0.5 |
Peer average |
7.1 |
4.0 |
14.8 |
0.8 |
Source: Refinitiv, Edison Investment Research. Note: P/Es adjusted to calendar year 2019. Priced 11 August 2020.
Exhibit 7 shows the recent share price performance for the peer group. The economic sensitivity of most lenders explains the negative share price moves of most of the stocks over most of the periods shown. Compared with the average, S&U’s share price has shown less weakness over all periods except the past month.
Exhibit 7: Peer group share price performance
% change |
1 month |
3 months |
1 year |
YTD |
From 12m high |
S&U |
-5.6 |
-2.7 |
-27.7 |
-23.9 |
-35.8 |
Close Brothers |
-0.4 |
3.9 |
-12.2 |
-29.5 |
-32.2 |
PCF Group |
-3.6 |
-22.9 |
-31.5 |
-47.1 |
-52.4 |
Provident Financial |
10.6 |
9.4 |
-51.5 |
-59.1 |
-62.0 |
Secure Trust Bank |
-2.5 |
-17.3 |
-48.9 |
-58.1 |
-61.3 |
Average |
1.0 |
-6.7 |
-36.0 |
-48.5 |
-52.0 |
Source: Refinitiv, Edison Investment Research
Exhibit 8: Financial summary
£’000s |
2016 |
2017 |
2018 |
2019 |
2020 |
||
Year end 31 January |
|||||||
PROFIT & LOSS |
|||||||
Revenue |
|
|
45,182 |
60,521 |
79,781 |
82,970 |
89,939 |
Impairments |
(7,611) |
(12,194) |
(19,596) |
(16,941) |
(17,220) |
||
Other cost of sales |
(8,980) |
(12,871) |
(17,284) |
(15,751) |
(19,872) |
||
Administration expenses |
(7,131) |
(8,332) |
(9,629) |
(10,763) |
(12,413) |
||
EBITDA |
|
|
21,460 |
27,124 |
33,272 |
39,515 |
40,434 |
Depreciation |
|
|
(209) |
(253) |
(294) |
(414) |
(450) |
Op. profit (incl. share-based payouts pre-except.) |
|
|
21,251 |
26,871 |
32,978 |
39,101 |
39,984 |
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Non-recurring items |
0 |
0 |
0 |
0 |
0 |
||
Investment revenues/finance expense |
(1,782) |
(1,668) |
(2,818) |
(4,541) |
(4,850) |
||
Profit before tax (FRS 3) |
|
|
19,469 |
25,203 |
30,160 |
34,560 |
35,134 |
Profit before tax (norm) |
|
|
19,469 |
25,203 |
30,160 |
34,560 |
35,134 |
Tax |
(3,583) |
(4,861) |
(5,746) |
(6,571) |
(6,252) |
||
Discontinued business after tax |
53,299 |
||||||
Profit after tax (FRS 3) |
|
|
69,185 |
20,342 |
24,414 |
27,989 |
28,882 |
Profit after tax (norm) |
|
|
15,886 |
20,342 |
24,414 |
27,989 |
28,882 |
Average Number of Shares Outstanding (m) |
12.0 |
12.0 |
12.1 |
12.1 |
12.1 |
||
Diluted EPS (p) |
|
|
576.5 |
169.1 |
202.4 |
232.0 |
239.4 |
EPS - normalised (p) |
|
|
132.4 |
169.1 |
202.4 |
232.0 |
239.4 |
Dividend per share (p) |
201.0 |
91.0 |
105.0 |
118.0 |
120.0 |
||
EBITDA margin (%) |
47.5% |
44.8% |
41.7% |
47.6% |
45.0% |
||
Operating margin (before GW and except.) (%) |
47.0% |
44.4% |
41.3% |
47.1% |
44.5% |
||
Return on equity |
15.2% |
15.2% |
16.7% |
17.6% |
16.8% |
||
BALANCE SHEET |
|||||||
Non-current assets |
|
|
103,653 |
138,004 |
181,015 |
185,383 |
197,806 |
Current assets |
|
|
61,903 |
57,763 |
84,178 |
95,430 |
108,275 |
Total assets |
|
|
165,556 |
195,767 |
265,193 |
280,813 |
306,081 |
Current liabilities |
|
|
(6,850) |
(17,850) |
(7,927) |
(6,722) |
(7,424) |
Non-current liabilities inc pref |
(30,450) |
(38,450) |
(104,450) |
(108,724) |
(119,183) |
||
Net assets |
|
|
128,256 |
139,467 |
152,816 |
165,367 |
179,474 |
NAV per share (p) |
1,084 |
1,177 |
1,276 |
1,375 |
1,493 |
||
CASH FLOW |
|||||||
Operating cash flow |
|
|
(16,017) |
(27,431) |
(43,418) |
10,530 |
4,946 |
Net cash from investing activities |
80,716 |
(308) |
(1,040) |
(785) |
(265) |
||
Dividends paid |
(23,090) |
(9,548) |
(11,377) |
(13,080) |
(14,461) |
||
Other financing (excluding change in borrowing) |
55 |
21 |
12 |
14 |
14 |
||
Net cash flow |
|
|
41,664 |
(37,266) |
(55,823) |
(3,321) |
(9,766) |
Opening net (debt)/cash |
|
|
(53,565) |
(11,901) |
(49,167) |
(104,990) |
(108,311) |
Closing net (debt)/cash |
|
|
(11,901) |
(49,167) |
(104,990) |
(108,311) |
(118,077) |
Source: S&U accounts, Edison Investment Research. Note: FY16 dividend per share includes exceptional payment of 125p.
|
|
Walker Greenbank’s FY20 results date has been reset to 30 June (and complies with updated FCA policy guidance). Its latest update provides no new financial information though orders continue to be received despite lockdown conditions. Operational steps already taken appear to be appropriate, retaining sufficient infrastructure to service prevailing sales demand levels while additional actions aimed at preserving business liquidity are referenced, consistent with those seen elsewhere in the quoted sector. Taken together, the company appears to have quickly adjusted its business model to meet current market challenges in FY21.