S & U

24 March 2023
By Maynard Paton

Results summary for S & U (SUS):

• A seemingly lower-than-normal bad-debt charge underpinned a record H1 performance, which in turn supported fresh highs for net asset value (NAV) and the dividend.

• Mixed signals remain at the primary motor-finance division, with encouraging collection rates offset by lingering pandemic-related provisions and talk of “choppy waters ahead” testing “policies and procedures“.

• Bumper progress at the property-loan operation heralded the subsidiary declaring its maiden dividend and another divisional executive appointed to the board.  

• Debt remains under control at 42% of customer loans, although admin and other costs have reached their highest combined proportion of revenue since at least FY 2016.  

• Management’s webinar commentary cited a broker’s £33 price target, with subsequent RNSs suggesting the £22 shares are not expensive at a potential 1.17x NAV with a 6% income. I continue to hold.

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28 June 2022
By Maynard Paton

Results summary for S & U (SUS):

• A “lower than normal” bad-debt provision underpinned a record full-year profit, which in turn supported fresh highs for net asset value (NAV) and the dividend.

• Very mixed signals are emerging from the main motor-loan division, with encouraging collection rates offset by “a more heightened risk of an adverse economic environment” and higher expected write-offs among new loans.

• Further surplus cash from the motor-loan division was redirected into the property-loan subsidiary, which reported a bumper performance and prompted optimistic near-term management predictions.

• ROCE levels remain modest and suggest SUS’s inherent value is biased towards the asset value of its loan book rather than annual earnings.

• Despite current-year profit running “above budget“, the £21 shares trade at 1.24 times NAV and offer a 6% yield. I continue to hold.

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19 October 2021
By Maynard Paton

Results summary for S & U (SUS):

• A record H1 profit performance supported by a “lower than normal” bad-debt provision and the dividend rebounding 50% to pre-Covid levels.

• The main car-loan division has recovered well from the pandemic, with collection rates (94%) and on-time first payments (98%) now standing at multi-year highs.  

• The fledgling property-loan operation enjoyed a bumper six months following the government CBILS scheme.

• Interest charges at 3%, increased borrowing facilities and headroom of £65m indicate no obvious funding concerns.  

• The £28 shares are close to an all-time high and may already reflect management’s webinar talk of car-loan volumes increasing 25% to 25,000 a year. I continue to hold.

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22 April 2021
By Maynard Paton

Results summary for S & U (SUS):

• A predictably Covid-blighted statement that confirmed extra write-offs of £19.5m, full-year profit diving almost 50% and the first annual dividend cut since at least 1987.

• Various calculations indicate credit quality at SUS’s motor-finance division declined by approximately 10%, due mostly to payment holidays.

• Management’s webinar comments claimed property-loan profit could quintuple to £5m within the next three years.

• Reduced net debt, interest charges at 3% plus fresh borrowing facilities suggest no obvious funding concerns.  

• The £24 shares may already reflect improved collection rates, recovering loan transactions, new loan quality at a five-year high and the generally upbeat directors. I continue to hold.

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09 October 2020
By Maynard Paton

Results summary for S & U (SUS):

• Extra write-offs totalling £13.8m did not seem too awful in the circumstances and should reflect the bulk of the pandemic disruption.

• The interim dividend was reduced by 35% and management hoped for a full-year payout of between 80p and 100p per share.

• Payment ‘holidays’ have left some 37% of accounts overdue, but monthly collections have rebounded to a respectable £12m after the half-year. 

• Net debt of £108m remains significant, although cash flow covered interest payments a very reasonable 10x.

• The shares trade relatively close to book value and could offer double-digit annual returns assuming a full recovery. I continue to hold.

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19 April 2020
By Maynard Paton

Results summary for S & U (SUS):

• Another set of record annual figures that showed steady progress — albeit overshadowed entirely by the potential impact of Covid-19.

• The boardroom’s confidence is encouraging. The final dividend was reduced only slightly and no staff have been furloughed.

• Some £302m has been loaned to customers with patchy credit histories, and recouping that money has become vital. Management says collections are “very good”.

• Net debt of £118m and a 26% net-interest margin lead to respectable returns on capital, but the borrowings will not prove ideal if defaults increase and profits fall.

• Current-year earnings have become anyone’s guess, and a bargain-basement P/E may be rather less than the current 10x trailing multiple. I continue to hold.

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19 November 2019
By Maynard Paton

Results summary for S & U (SUS):

• Record first-half figures that showed revenue up 7%, operating profit up 3% and the dividend up 6%.

• Bad debts within the Advantage car-loan division have started to subside following 18 months of sharp increases.

• Management remains upbeat as loan applications continue to flood in, and has appointed an industry ‘heavyweight’ as the new Advantage MD.

• Progress at Aspen Bridging was “slightly short of expectations” but the division’s long-term potential could be considerable. 

• Possible P/E of 11 and yield of 5.8% do not appear expensive if indeed the business can enjoy “a resumption of [its] usual rates of growth”. I continue to hold.

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05 April 2019
By Maynard Paton

Results verdict on S & U (SUS):

• Satisfactory double-digit growth supported mostly by additional car loans issued during the first half.

• Rising bad debts clearly indicate borrowers are no longer as profitable or reliable as they once were.

• Improved first-payment rate suggests underwriting tweaks have started to curb future write-offs.

• Reduced level of customer lending during the second half generated surplus cash and lowered group debt.

• P/E of 10.7 and yield of 6.2% reflect management hints of slowing progress. I continue to hold.

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28 September 2018
By Maynard Paton

Update on S & U (SUS).

Event: Interim results and presentation for the six months to 31 July 2018 published 25 September 2018.

Summary: SUS reported satisfactory first-half progress, with the group’s main car-loan division now set to deliver its 19th consecutive year of growth. The performance was accompanied by the usual drawbacks — tighter underwriting leading to fewer new customers, and debt write-offs continuing to soar (this time by 32%). The group’s boss reckons we’re at a “relatively late stage of the economic cycle”, too. Still, I remain happy to collect the 4.4% yield and back the veteran directors who carefully steward their £134m family shareholding. I continue to hold.

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28 March 2018
By Maynard Paton

Update on S & U (SUS).

Event: Preliminary results and presentation for the year to 31 January 2018 published 27 March 2018

Summary: These results from the car-loan specialist once again provided an investment dilemma. True, shareholders received yet another respectable progress report from the accomplished executive team. However, the finer details showed potential bad debts soaring 59% — which was double the growth rate of revenue and customer advances. The chairman is set to make some ‘sensible gear changes’ to keep a lid on potential bad debts, but until the changes become evident, the share-price multiple could be stuck at 13. I continue to hold.

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26 September 2017
By Maynard Paton

Update on S & U (SUS)

Event: Interim results for the six months to 31 July 2017 published 26 September 2017.

Summary: These results displayed further “steady and sustainable” growth from the used-car loan firm. Although the seasoned executives remain optimistic about the group’s prospects and the wider economy, margins have dipped once again as the impairment charge representing potential bad loans continues to rise. Still, the 11-12x multiple appears modest given the company’s growth rate and there is a near-5% income, too. I continue to hold.

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30 March 2017
By Maynard Paton

Quick update on S & U (SUS).

Event: Preliminary results and presentation for the year to 31 January 2017 published 28 March 2017

Summary: These results from the car-loan specialist were quite respectable, although a 60% increase to bad debts does suggest the favourable under-writing conditions of the last few years may now have turned. Still, the veteran family management does not seem too concerned and, encouragingly, appears more interested in developing the business towards 2028 rather than 2018. That length of investment horizon suits me just fine. I continue to hold.

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03 February 2017
By Maynard Paton

Today I’m reviewing my latest new investment.

The company concerned is S & U (SUS), the shares of which I purchased at an average price of 2,070p (including all costs) during January 2017. The bid price is currently 2,045p and the position now represents between 4% and 5% of my portfolio.

I have to confess that SUS may not be everyone’s idea of a great business. The group was for years best known as a doorstep moneylender, but these days it solely provides hire-purchase finance to buyers of used cars.

A lot could go wrong here. SUS’s customers generally have patchy credit histories, while its loans attract 29% interest and are secured on depreciating assets. A deep recession may well cause substantial problems.

However, some impressive under-writing has delivered an illustrious record of expansion. Notably, bad debts have been controlled carefully — even during the difficult banking-crash years. Recent trading appears upbeat, too, with many potential borrowers actually being turned away.

All told, I’m trusting a family executive team that extols the virtues of “steady, sustainable growth” — and has at least £103m riding on the share price — can ensure the business stays out of trouble and instead continues to prosper and grow.   

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