S&U: credit where credit is due

S&U is a leading provider of specialist motor finance and has an impressive track record of growing earnings and dividends, writes Mark Watson-Mitchell.

Penny share enthusiasts be warned: if you cannot bring yourself to buy shares whose prices are quoted in the tens of pounds – then look away now because this stock that I am highlighting today is trading at around the £20 price level.

If you discard it though, I have to warn you that you would be casting aside a company that is a convincing and increasing profit earner, that has a very strong balance sheet, yields a healthy 5% plus, has a fairly tight equity and trades on less than 9 times earnings. You would also be turning away a very undervalued potential constituent of your own growth portfolio.

S&U (LON:SUS) is in the finance business – specialising in motor finance and recently also in property bridging finance. Advantage Finance was founded in 1999 and has subsequently grown into being one of the UK’s leading providers of specialist motor finance products. The company set up Aspen Bridging in 2017, initially as a pilot exercise. Its aim was to become a specialist provider of property bridging finance for individuals and business borrowers. Today Advantage and Aspen are the key drivers in S&U.

The Grimsby based Advantage Finance, which employs over 150 people, has provided motor finance for over 150,000 customers across the UK since its inception, and that figure is now growing at the rate of over 20,000 per year.

Operating in the non-prime market sector, it receives over 90,000 finance applications each month, which runs at well over 1m in a year. However, it is cautious in advancing its funding, with possibly only 25,000 of those total applicants having been offered an acceptance.

Some 90% of its business is derived from internet brokers, 5% from car dealers and the balance 5% is generally made up by previous customers requiring fresh vehicle finance. The average motor loan is for around £6,136 for a 50-month term at 17.9% flat interest. It is on hire purchase on an average five-year old vehicle, based upon an average customer rating score of 864, and the cost of sales per loan is around £727. Of late the number of approvals on motor loans has dropped from 30% to 25% but it is still writing 2,000 a month.

Advantage has reported 19 years of record profits since 1999, when it was set up. This side creates an average of 15% capital return before cost of funds – it was actually 15.6% last year.

The Solihull based Aspen Bridging was set up in 2017 aimed at the short-term refurbishment and residential markets. It lends up to £2m per deal but the average comes out at £375,000, for a six to 14-month term at just over 1% interest per month, on a 71% maximum loan to value.

Aspen has granted over 100 such loans so far in its short period of life. By the half-way stage, the company had hit a total of a £24m loan book. Overall the group’s own debt is around the £125m, which is well within its recently increased £160m facilities. That is some 65% gearing.


There are 12,062,426 shares in issue, of which various members of the Coombs family and directors control nearly 50%. Wiseheights Ltd owns 20.1%, with Hargreaves Lansdown, Alken Asset Management and others holding just under 4% of the equity.

In the last five years revenue has increased steadily each year from £36.1m to £89.2m reported for the year to end January 2019. In that same period pre-tax profits rose yearly from £14.8m to £34.6m, with earnings up from 100.1p to 233.2p per share and the dividend increased from 66p to 118p per share.

Looking ahead, we will see just how well this company is trading when the interims to end July are announced in just under a month’s time on 24 September. But already estimates, following the early August first half trading update, are suggesting that £36.4m pre-tax is possible for the current year to next January, worth 245.6p in earnings and 119p in dividend per share.

For 2021 a move upwards to £41.7m is estimated pre-tax, with 285p of earnings and 130p of dividend per share – always maintaining the slightly above twice covered margin. Further out, estimates for the 2022 year to end-January infer £46m pre-tax, 314.6p of earnings and a 143p dividend.

The whole group is now capitalised at just £242m. Trading at 2,010p these shares, despite such a lumpy price, are clearly undervalued on just 8.5 times current year earnings and a fruitful 5.7% yield. My target price is 2,500p by the end of next year.