S & U Share Discussion Threads

[jeffian] 01/9/2015 15:42

flyposter,
This is probably more a long-term investor's, rather than a trader's, share and it may well be an appropriate time for you to move onto other opportunities, but you ask what your are 'missing' and I think it is this. The core Home Credit business has been very flat/low growth for many years. There was a period prior to the Advantage car finance business when profits were static for several years and the dividend barely covered. Advantage transformed the company and has provided all of the growth. Besides being a 'mature' business, Home Credit is also likely to encounter increasing political interference and regulation. All in all, it makes strategic sense to ditch it and focus on the growth areas of car finance and the proposal to become a niche bank. Yes, of course this will result in a smaller business, but the plan is to return part of the value of the existing company to you in the form of cash, whilst retaining your shareholding in the smaller growth business. Hopefully, the two combined equal the current share price! Going forward, profits, earnings per share and dividends would have to be reduced on a like-for-like basis which is why I am assuming (see previous posts) that the return of capital will be accompanied by a share re-structuring so that eps and divs per share will be maintained, but you will have less shares.

I note that the opportunity you are moving/have moved to is LTC. Did you buy before today's takeover announcement (happy timing!) or did you buy on the announcement?

[plasybryn] 01/9/2015 12:54

THey are looking at developing a new arm lending to Small businesses.
But look at the chart and their history of continuously adding value.
This is one of those rare businesses which is hardly impacted by market volatility.
And the fact that c. 60% is owned by the family ensures our very best intests are carefully protected. These are asute business people who run a tight ship backed by a very sound balance sheet.
They have a great work force and are totally driven by delivering first rate customer service.
Read the Annual Report & Accounts to get a feel for what makes this extraordinary, little known business tick.

[flyposter] 01/9/2015 12:43

There was another reason too, I sold the ones I had least faith in for some wonga for this:

[flyposter] 01/9/2015 12:31

"Substantial progress continues to be made in our home credit division"

" Whilst sales in our home credit business have reflected a more cautious climate prior to the General Election and full Financial Conduct Authority ("FCA") authorisation, weekly collections remain strong on conservative underwriting standards.

Cash generation remains good in both businesses and overall Group profitability is comfortably ahead of last year. "

"INCREASED" cash generation from our home credit business has partly off-set a lower year on year investment in our maturing motor finance business."

""The decision to sell our Home credit division which has formed the ballast of our business for so long was wrenching and difficult"

Playsbryn, I don't hold a huge amount, but the above gives me the fear, they are downsizing right? If the the home credit business had increased profit, why sell it and have one business? They have demonstrated that two is better than 1, then sell the good one? or am I missing something here? I haven't been trading long, but I am doing good, however I'll happily put my hands up if I have got this wrong. would you sell after the pay back?


I might be completely wrong, but I foresee a profit warning.

[plasybryn] 01/9/2015 11:30

Why would you be out?
Why made you decide to leave?
It won't be long before we get details of how much capital is going to paid back to shareholders from the recent asset sale.

[flyposter] 01/9/2015 11:17

Done OK, but I am out, good luck to all those holding.

[plasybryn] 06/8/2015 19:57

I have suggested that idea to them in the past.
But I don't think it is a "normal" stock in that they aren't too concerned about making the price more affordable so as to make it more attractive to new investors. In fact I'm sure they would love to take it private if they could.
But yes they might follow your suggested, although it seems like a lot of work & expense.
I like it being under the radar and expensive. It keeps volatility low.

[jeffian] 06/8/2015 18:03

Yes, of course a return of capital doesn't increase the total value of your holding, it just gives you part back in cash and leaves you with an equivalent reduction in the retained shares. But most companies who do this - and there have been plenty (e.g. Stagecoach, Intercontinental Hotels, Whitbread etc) - don't like their shares to look as if they've gone down in value, so effect a 'share consolidation' which leaves you with a lesser amount of shares trading at around the same value, with the same eps and dividends etc and I think it most likely that is what SUS will do. Because they have so few shares in issue already, and they're quite highly valued, perhaps they might effect a share split at the same time, which would increase the number of shares in issue and inject some much-needed liquidity into the stock.

[plasybryn] 06/8/2015 17:14

jeffian: I think we will now have to wait for the Half Year Results on 22nd September I believe.
But we have to remember the value of our shares will go down roughly by the amount of the pay out.
But this promise of a juicy return could draw more investors in, in the meantime.
I have a feeling it will be split. Half this year and half in the Spring.
What do you think?

[jeffian] 06/8/2015 15:33

Plasybryn,

Ref our earlier discussion about the extent of capital return, I was interested to read this bit of the last statement -
"Whilst retaining our revolving credit facilities of £40 million with our banking partners, these will be paid down temporarily pending further use of the funds. Our longer term loan facility of £30m will remain fully drawn. This means that the Group will have cash balances of around £50 million for investment and returns to shareholders."
- which (I think!) means they have up to £90m (£50m cash plus £40m undrawn facilities) to 'play' with.

I'm still expecting pounds not pennies!

[plasybryn] 06/8/2015 08:52

I believe it is a badge of honour!

[firtashia] 06/8/2015 08:47

Plasybryn- who blindly keeps marking all your posts down- not a scorned woman or trader is it ;-)

[plasybryn] 05/8/2015 10:59

Perhaps investors were hoping for specifics on the pay out, but clearly it is still coming.
Extract from RNS today:-

"The net proceeds of the sale will firstly be reinvested into the accelerated growth of Advantage Finance. Net proceeds will also finance the development of a new Advantage SME vehicle lending product and allow an exceptional distribution to shareholders; further announcements will follow in due course."

[plasybryn] 03/8/2015 18:46

Result of General Meeting

3 August 2015

The Board of S&U is pleased to announce that, at the General Meeting convened earlier today to approve the disposal of Loansathome4u and authorise the Directors to take all such steps to implement the disposal, the Resolution was duly passed. Completion of the disposal is expected to take place on 4 August 2015.

- ENDS -

[plasybryn] 28/7/2015 15:22

Thanks jeffian. Interesting discussion.

[jeffian] 27/7/2015 22:46

They're going to want to keep a reasonable level of gearing. It doesn't make sense for a company to hold cash on the balance sheet.

A good example of how it might work is Stagecoach (SGC). I originally bought 30,000 at 37p. Over the years, they have paid out returns of capital amounting to 128p/share, on each occasion reducing the shares in issue by an equivalent amount, so today I hold 12,213 at around £4. I've got rather more SUS so I'm hoping for a similar performance!

[plasybryn] 27/7/2015 19:31

I fully appreciate that jeffian. Thanks
If they invest £34m in Advantage & put £13m into the development of Advantage's nascent SME vehicle lending product, we are left with £33m (£80m less £34m less £13m).
Then they say they will reduce indebtedness. Not sure how much this is. But they also say it will create a net cash balance of £26m.
So I can't see them paying back more than say £12m /£13m, which with 11.88m shares means circa £1 maximum per share. I would see that as "significant".
I can't see a figure of £3 would be "doable."

[jeffian] 27/7/2015 18:01

The only thing you're missing is that either the existing shares in issue will reduce by an amount equivalent to the return of capital, or they will reduce the number of shares you hold 'pro rata'. I would guess at the second option, as it leaves earnings per share and dividend per share the same for comparison purposes going forward.

[plasybryn] 27/7/2015 17:43

Thanks guys, but a £3 return per share is equivalent to 12.5%!
If that was the case surely more investors would be scrabbling to buy ahead of the cut off date?
Am I missing something?
If true the Coombes family will be receiving a massive pay-out!
Thanks for your thoughts on this.

[jeffian] 27/7/2015 17:04

Last year's dividend was 66p so I don't think that 50p would be regarded as a "significant return of capital"! I would go along with Buffetteer and suggest we are looking at £'s not pence. Out of the £80m-odd cash received, they say they want to keep around £50m-odd to develop Advantage and that they will have £26m net cash in the bank. I would guess, therefore, that we must be looking at £3+ but I suspect that the way they will do it is to link a capital return to a reduction of shares in issue to retain the progression of earnings and dividends per share (as they say in the Circular, the loss of profits from Loansathome4u will reduce profits and earnings per share).

This from the Circular -

"2. Return of Capital to Shareholders and Dividend Policy
Whilst the Board remains confident of continuing the growth in earnings per share which has seen the value of S & U rise substantially over the past 10 years, it is mindful of both the need to operate an efficient and appropriately capitalised balance sheet and to reward shareholders reflecting not only our trading success but also the increase in the Group’s net asset value resulting from the Proposed Disposal.
In respect of the year ended 31 January 2015, our three dividend payments will total 66p per share; as announced on 24 March 2015 and approved at the AGM held on 21 May 2015, the final dividend of 30p per share will be paid on 10 July 2015 to ordinary shareholders on the register at 19 June 2015. Since 2010, S & U’s earning per share have increased from 55.2p to 156p. Dividend per share has risen from 34p to 66p and consequently dividend cover has increased from 1.62 to 2.36 times. Over time it is our intention that dividends should be covered twice by earnings.
On receipt of the net proceeds from the Proposed Disposal, the Board will continue to assess reinvestment options and review the Company’s capital structure. Following this it would also be our intention to make a significant return of capital to shareholders; the form of this distribution will be agreed after discussion with the Company’s Shareholders. The Board will monitor the capital requirements of the Group based on experience in expanding the business streams noted above. This could result in further distributions."

[buffetteer] 27/7/2015 16:17

We don't know yet because they haven't decided but I would think it will be pounds not pence.

[plasybryn] 27/7/2015 14:37

Does anyone have a view on what a "significant return of capital" is likely to be per share?
There is only 11.88 million shares in issue.
Could it be as much as 50p per share?
I'm just wondering if to buy some more.
Any help welcomed.

[buffetteer] 07/7/2015 15:05

S & U plc ("S & U" or "the Group" or the "Company") Proposed Disposal of Loansathome4u to Non-Standard Finance plc

7 July 2015

The Company today announces that it has entered into a conditional agreement to sell its home credit business which trades as Loansathome4u, for a total cash consideration of £82.5 million to Non-Standard Finance plc.

Highlights

· The Proposed Disposal will generate £80 million net of expenses
· Gross cash proceeds from the Proposed Disposal equate to approximately 694 pence per S & U share compared to the closing price per S & U share of 2281 pence on 6 July 2015
· Profit on sale will increase net assets by £47 million*, and create a net cash balance of £26 million*
· The Proposed Disposal will allow for £34 million of investment into Advantage and £13 million for the development of Advantage's nascent SME vehicle lending product
· Intention for a significant return of capital and possible future distributions to shareholders
· The Proposed Disposal is conditional upon the approval of the Company's shareholders
· Directors and certain shareholders of the Company, who together control directly or indirectly approximately 51.94 per cent. of the issued ordinary share capital of the Company, have given irrevocable undertakings to vote in favour of the Proposed Disposal
*Derived from pro-forma figures based on 31 January 2015 accounts

Commenting on the Proposed Disposal Anthony Coombs, S & U plc Chairman, said:

"The recent unsolicited approach from Non-Standard Finance plc for our home credit business led the Board to reconsider the Group's future strategy.

"The Board believes that there are significant benefits from the sale of Loansathome4u for realising fair value for our shareholders; but also significant opportunities to further accelerate the expansion of Advantage and develop its nascent small business vehicle lending products, as well as other higher growth areas of specialist finance.

"It is our intention to make a significant return of capital once we have concluded our assessment of reinvestment options and following discussions with the Company's shareholders."

[gorse] 07/7/2015 14:45

Prepare for a significant Capital Return!!!! Price - 2450 - announcement of disposal ..