Last close As at 05/08/2026
GBP19.60
▲ 20.00 (1.03%)
Market capitalisation
GBP239m
Research: Financials
The expected April bounce in motor finance transactions did not quite meet Advantage’s expectations, but there was still an acceleration and credit quality on new loans has remained good. Aspen Bridging is seeing strong growth in receivables and is on track to make a material contribution to group profits.
Written by
S&U |
Strong start to the year |
AGM update |
Financial services |
24 May 2021 |
Share price performance
Business description
Next events
Analysts
S&U is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||||
The expected April bounce in motor finance transactions did not quite meet Advantage’s expectations, but there was still an acceleration and credit quality on new loans has remained good. Aspen Bridging is seeing strong growth in receivables and is on track to make a material contribution to group profits.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
01/20 |
89.9 |
35.1 |
239.4 |
120.0 |
11.2 |
4.5 |
01/21 |
83.8 |
18.1 |
120.7 |
90.0 |
22.2 |
3.4 |
01/22e |
88.6 |
23.9 |
159.2 |
100.0 |
16.8 |
3.7 |
01/23e |
94.5 |
31.8 |
211.9 |
110.0 |
12.6 |
4.1 |
Note: *PBT and EPS are reported. EPS are diluted.
AGM statement and update
S&U’s trading statement for the period from 1 February to 19 May indicated that the group is continuing a strong recovery as motor and housing markets revive. Profitability for both Advantage motor finance and Aspen property bridging were ahead of group projections in the period. Advantage saw a smaller than expected bounce in transactions in April following the opening of dealerships, but advances have accelerated with good new business loan quality. Monthly collections are above budget. Customers on payment holidays are down to 1,200 (out of a cumulative total of 21,527) and post-holiday customer-collection rates have improved to 85.4% of due compared with 79% in January and a pre-pandemic norm of c 90%. The group notes that it is optimistic that Advantage will reach its advances and profit growth targets for the year. Aspen is benefiting from its participation in the government guaranteed Coronavirus Business Interruption Loan Scheme (CBILS) and its net receivables stand at over £50m (£34.1m at end January). Average deal size in Q122 was over £1m (FY21: c £0.54m), with overall maximum gross LTVs reduced to 59%. Profitability reached a record level in Q122.
Financial position and outlook
At the end of the period, group borrowings stood at £111m (gearing 60%) and loan facilities have been increased by £25m, taking the total to £180m and providing scope for expected growth. Current trends for both businesses are encouraging, but developments in the pandemic and the macroeconomic background remain sensitivities for the group and we have left our estimates unchanged at this stage (see next page for an update on industry data).
Valuation
On our estimates the shares trade on a current year prospective P/E of nearly 16.8x, but this falls to 12.6x in FY22 as fuller benefits of a recovery in volumes and credit quality are assumed to flow through. Using an ROE/COE model, the price to book ratio of 1.8x implies a return on equity (ROE) of just over 16%, approaching the pre-pandemic five-year average level.
Market background
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 independent forecasts for UK GDP and unemployment as collected by the UK Treasury in May. Compared with the March data shown in our detailed outlook note in April, the latest GDP forecasts are higher for 2021 but lower for 2022. This probably reflects the assumption that the success of the vaccination programme brings forward recovery and these numbers could be moderated if COVID-19 variants of concern hamper the easing of restrictions. Unemployment expectations have been lowered for both years and on all the measures shown. This is positive for Advantage, if maintained, as unemployment is a key sensitivity.
Exhibit 1: Comparison of independent economic forecasts for the UK (May)
% |
Average |
Average of new forecasts |
Low |
High |
|
GDP growth |
|||||
2021 |
6.4 |
6.5 |
4.9 |
8.1 |
|
2022 |
5.4 |
5.6 |
2.2 |
8.2 |
|
Labour Force Survey unemployment rate Q4 |
|||||
2021 |
5.9 |
5.9 |
5.2 |
6.5 |
|
2022 |
5.2 |
5.1 |
4.3 |
7.0 |
|
Source: HM Treasury
Exhibit 2 shows a definite revival in consumer confidence as the easing of lockdown restrictions began. While there are near-term uncertainties and virus variants pose an ongoing threat, continued success with the vaccination and testing programmes would be likely to have a further positive effect on confidence. Exhibit 3 shows that the unemployment rate has moved up, but appears to be moderating slightly on the latest, provisional, readings. It is still being cushioned by government job protection measures to some extent. Redundancies, a more immediate measure, saw a very sharp spike as the pandemic made an impact, but, encouragingly, are now approaching more normal levels.
|
Exhibit 2: GfK UK consumer confidence indicator |
Exhibit 3: UK redundancies and unemployment |
|
|
|
Source: Refinitiv (last value April 2021) |
Source: ONS (last value March 2021) |
|
Exhibit 2: GfK UK consumer confidence indicator |
|
|
Source: Refinitiv (last value April 2021) |
|
Exhibit 3: UK redundancies and unemployment |
|
|
Source: ONS (last value March 2021) |
We now turn to 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. Volume recovered very well following the initial lockdown, albeit with further dips following subsequent lockdowns. Exhibit 5 shows a similar pattern in used car finance, with the latest reading (for March) showing a strong percentage increase compared with the depressed prior year period. The Finance & Leasing Association (FLA) has previously indicated that it looks for the overall value of new car finance business for calendar 2021 to grow by 17%, followed by 12% in 2022. As noted earlier, the recovery in volumes Advantage saw in April were below its expectations but it has still seen growth and looks for this to continue, subject to market and macroeconomic developments.
|
Exhibit 4: Used car transactions and new registrations |
Exhibit 5: Used car finance through dealerships |
|
|
|
Source: SMMT, Edison Investment Research |
Source: Finance and Leasing Association. Note: By volume. |
|
Exhibit 4: Used car transactions and new registrations |
|
|
Source: SMMT, Edison Investment Research |
|
Exhibit 5: Used car finance through dealerships |
|
|
Source: Finance and Leasing Association. Note: By volume. |
On used car prices, these were buoyant in 2020 and early 2021 with strong consumer demand and reduced supply pushing prices up. In a May update, auctioneer Aston Barclay has commented that it has seen an 8% increase in prices at its auction sites and has previously suggested that it would take a few months for supply to catch up with demand. A return to a more balanced market and lower prices in some segments could be hastened by increased repossessions in due course. For Advantage the exposure to lower auction prices on repossessions is limited by the relatively low value of the vehicles it finances.
Looking at the background for Aspen Bridging, Exhibit 6 shows the number of UK non-residential and residential transactions, with residential being most relevant for Aspen. Both have seen a sustained improvement following the initial lockdown. On a longer view, S&U sees 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 should also have significant scope for expansion now that it is more established in the market. The CBILS lending mentioned earlier could also give useful access to new customers and brokers as well as expanding the loan book in the short term.
|
Exhibit 6: UK property transactions (seasonally adjusted) |
|
|
Source: HM Revenue & Customs. Note: Figures for January to March 2021 are provisional. SA = seasonally adjusted. |
Exhibit 7: Financial summary
£'000s |
2017 |
2018 |
2019 |
2020 |
2021 |
2022e |
2023e |
||
Year end 31 January |
|||||||||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
60,521 |
79,781 |
82,970 |
89,939 |
83,761 |
88,587 |
94,461 |
Impairments |
(12,194) |
(19,596) |
(16,941) |
(17,220) |
(36,705) |
(28,223) |
(22,204) |
||
Other cost of sales |
(12,871) |
(17,284) |
(15,751) |
(19,872) |
(14,264) |
(20,156) |
(21,521) |
||
Administration expenses |
(8,332) |
(9,629) |
(10,763) |
(12,413) |
(10,576) |
(11,516) |
(12,563) |
||
EBITDA |
|
|
27,124 |
33,272 |
39,515 |
40,434 |
22,216 |
28,692 |
38,173 |
Depreciation |
|
|
(253) |
(294) |
(414) |
(450) |
(520) |
(528) |
(475) |
Op. profit (incl. share-based payouts pre-except.) |
|
|
26,871 |
32,978 |
39,101 |
39,984 |
21,696 |
28,164 |
37,698 |
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) |
(3,568) |
(4,310) |
(5,946) |
||
Profit before tax |
|
|
25,203 |
30,160 |
34,560 |
35,134 |
18,128 |
23,853 |
31,752 |
Tax |
(4,861) |
(5,746) |
(6,571) |
(6,252) |
(3,482) |
(4,532) |
(6,033) |
||
Profit after tax |
|
|
20,342 |
24,414 |
27,989 |
28,882 |
14,646 |
19,321 |
25,720 |
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 |
120.7 |
159.2 |
211.9 |
EPS - basic (p) |
|
|
170.7 |
203.8 |
233.2 |
239.6 |
120.7 |
159.2 |
212.0 |
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% |
26.5% |
32.4% |
40.4% |
||
Operating margin (before GW and except.) (%) |
44.4% |
41.3% |
47.1% |
44.5% |
25.9% |
31.8% |
39.9% |
||
Return on equity |
15.2% |
16.7% |
17.6% |
16.8% |
8.1% |
10.5% |
13.2% |
||
BALANCE SHEET |
|||||||||
Non-current assets |
|
|
138,004 |
181,015 |
185,383 |
197,806 |
173,413 |
231,494 |
258,273 |
Current assets |
|
|
57,763 |
84,178 |
95,430 |
108,275 |
111,426 |
122,305 |
136,754 |
Total assets |
|
|
195,767 |
265,193 |
280,813 |
306,081 |
284,839 |
353,799 |
395,027 |
Current liabilities |
|
|
(17,850) |
(7,927) |
(6,722) |
(7,424) |
(5,309) |
(4,357) |
(4,518) |
Non current liabilities inc pref |
(38,450) |
(104,450) |
(108,724) |
(119,183) |
(98,501) |
(160,923) |
(188,345) |
||
Net assets |
|
|
139,467 |
152,816 |
165,367 |
179,474 |
181,029 |
188,519 |
202,164 |
NAV per share (p) |
1,177 |
1,276 |
1,375 |
1,493 |
1,505 |
1,568 |
1,681 |
||
CASH FLOW |
|||||||||
Operating cash flow |
|
|
(27,431) |
(43,418) |
10,530 |
4,946 |
32,940 |
(47,259) |
(14,729) |
Net cash from investing activities |
(308) |
(1,040) |
(785) |
(265) |
(1,112) |
(250) |
(250) |
||
Dividends paid |
(9,548) |
(11,377) |
(13,080) |
(14,461) |
(13,098) |
(11,892) |
(12,134) |
||
Other financing (excluding change in borrowing) |
21 |
12 |
14 |
14 |
2 |
0 |
0 |
||
Net cash flow |
|
|
(37,266) |
(55,823) |
(3,321) |
(9,766) |
18,732 |
(59,401) |
(27,113) |
Opening net (debt)/cash |
|
|
(11,901) |
(49,167) |
(104,990) |
(108,311) |
(118,077) |
(99,345) |
(158,746) |
Closing net (debt)/cash |
|
|
(49,167) |
(104,990) |
(108,311) |
(118,077) |
(99,345) |
(158,746) |
(185,859) |
Source: S&U accounts, Edison Investment Research
|
|
Research: Investment Companies
Deutsche Beteiligungs (DBAG) reported a 17.3% NAV total return in H121, which includes an €0.80 dividend paid in the period (implying a 2.4% yield). NAV growth was primarily driven by the improved earnings prospects of portfolio companies and gains on the disposals of Rheinhold & Mahla and DNS:NET. DBAG recently significantly increased its available cash resources through a €106m equity issue and is now well positioned to embark on its extensive investment agenda. Its funds in the investment phase (DBAG Fund VII and DBAG Fund VIII) are currently 79% and 14% invested respectively. DBAG will also make long-term investments entirely from its own balance sheet, with its second such deal closed in H121.