S & U Share Discussion Threads

[aleman] 27/3/2018 12:06

I'm just pointing out that provisions rose much more quickly than revenues in 2017 and they are not a small number any more. That extra increase from poorer loan quality (the 60% rise was about £3.7m above a 30% rise which would have matched revenue growth rate) was added to your cost of sales and reduced your gross profit significantly. And that is for 2017. Anybody think things will have got better in 2018? Provisions have increased massively in the last 12 months since they said the following yet there seems to be no comment on the deterioration:

Advantage's mantra of "steady, sustainable growth" implies and depends upon robust debt quality and excellent customer relationships. Our customers require careful and consistent under-writing; hence the introduction of an updated, but still bespoke, credit scoring system this year. This continuous refinement has under-pinned the quality of Advantage's loan book throughout its history.


I think the trend will have worsened significantly and more will come off profit this year. I think we are going into recession but this one so far is more normal than last time. It's being driven by a more typical deterioration of credit quality and resultant tightening of credit to consumers, rather than last time's sudden interbank lending crunch. Central banks sorted LIBOR out last time fairly quickly and dropped rates sharply so consumer companies reliant on easy credit didn't suffer for very long. I think this one could be more drawn out and central banks won't step in if banks' balance sheets can cope. Tighter stress tests mean they are much stronger this time (though some European's look troubled - Deutsche) which might lead to banks taking control of more companies through debt for equity swaps. Central banks sound like they are going to keep raising rates even though pips are already squeaking in some sectors.

Anyway, it was just a heads up on the provisions trend for some names I recognise from threads on other yield shares. It's up to you what you do about it. I'm not here to keep posting bearish comments and I could be wrong about recession coming or credit quality might not deteriorate as much next year as it did this time. Good luck.

[jeffian] 27/3/2018 11:53

"For some customers who have sought to maintain living standards by taking new lines of credit, this has reduced capacity and been reflected in a rise in impairment to £19.4m this year. At 24.6% of revenue this is still relatively low versus the average for the previous 10 years of 27.2%. Further, 18 successive years of profit growth and operational refinement have given Advantage the experience and wisdom to make timely and targeted adjustments to its already sophisticated and sensitive under-writing model. In motoring terms, the shape of the road and the nature of the terrain has made for sensible gear changes, steering tweaks and an easing of the accelerator. The result is proving to be a slightly lower risk adjusted yield of 27% this year (2017: 28%). Early signs of the under-writing changes already made are having a beneficial effect upon both new customer quality and early repayment performance, which we anticipate will lead to a reduction in impairment to revenue in due course."

[mozy123] 27/3/2018 11:27

Loan loss provisions rose from £12.2m to £19.4m (+60%)

They are provisions, expected losses.

The revenue or lending increase 32% so of course the provision model has to go up. Adjusted for increase in revenue its not as bad at the 60% figure quoted here.

[jeffian] 27/3/2018 10:31

Great results. You've got to love this company.

Aleman, I've been a shareholder since 2001 and that's a subject that's persistently raised its head, particularly when the principal business was doorstep lending. I trust this Management absolutely.

[westcountryboy] 27/3/2018 10:28

Isn't the loan loss provision still fairly proportionate to revenue over the long term? For example I just looked at random at the results for 2011 and 2012 and loan loss provision was £13k on revenue of £50k, as against £19k on revenue of £80k in 2017. What has changed is operating profit which was then £11-13k and is now £33k - much healthier, because there are fewer other costs.

I am more concerned by the growth in debt, however.

[aleman] 27/3/2018 09:34

Some familiar names here so I'll comment. Loan loss provisions rose from £12.2m to £19.4m (+60%). Regardless of spin, this number is getting too big for a business of this size ahead of a likely economic downturn. Be careful and good luck.

[cwa1] 27/3/2018 07:57

Indeed.....

Anthony Coombs, Chairman of S&U plc commented:

"As our founder, Clifford Coombs, used to say "success breeds success" and I am delighted to report on another year of strong profit growth for S&U. Whatever the wider political or economic headwinds, the markets in which we operate remain strong. Recent data from the Finance and Leasing Association showed used car sales increased by 6% in number and 12% in value in 2017 whilst the UK property market remains robust. This combination of healthy market conditions, a strong demand for our products and our focus on quality, lead us to look ahead with quiet but real confidence."

[pugugly] 27/3/2018 07:50

Fantastic performace - Up on all metrics -

[plasybryn] 08/3/2018 17:09

Chart getting back into it's long term upward trend

[jeffian] 28/2/2018 17:10

Looks like a bit of Inheritance Tax planning going on in the Coombs family.

Lucky Jack!

[topvest] 09/2/2018 22:04

Yes, a good update. A well run company.

[haywards26] 09/2/2018 21:17

Very good update.

Trading strongly with the bridging loan addition gaining traction also.

Happy to hold and anything at 2000 or below is surely top up territory

[buffetteer] 09/2/2018 11:40

The ‘Dealflo’; system is clearly a Value- adding asset allowing v fast quotes and accurate risk mitigation . This should not be under- estimated .

[pugugly] 09/2/2018 07:54

Back to sleep until the accounts - 32p 2nd interim dividend very nice - Family run - family major shareholders - all aligned - Long term hold - Very pleased -

[cwa1] 09/2/2018 07:16

If Carlserg did Trading Updates.....

YEAR END TRADING UPDATE

S&U plc, the motor finance and property bridging lender, today issues a trading update for the period from its trading statement of 7 December 2017 to the Group's year-end on 31 January 2018.

Group trading remains strong and in line with expectations; demand for Advantage's motor finance has seen a record 24,500 transactions in the year, defying recent reports of a slowing car market. Aspen Bridging has lent over GBP10m and early repayments are in line with expectations. S&U's final results will be announced on 27 March 2018.

Advantage Finance

Our record-breaking motor finance business continues to do precisely that. Customer numbers have reached 54,000 against 43,000 a year ago and new transactions exceeded last year by 22% at 24,500, reflecting strong demand for our products. We continue to further refine our underwriting, underpinning future debt quality and resulting in even tighter approval rates.

Whilst this has led to improvements in initial customer quality scores, Advantage's new industry leading Dealflo system, fully rolled out in the period, has led to a significant improvement in transaction-to-approval rates. We expect this in turn to lead to further growth in high quality business, margin improvement and a gradual reversal in the recent, and historically small, uptick in impairment-to-revenue.

Furthermore, early signs are that the recent fall in new car sales is likely to buttress used car values, whilst the economic advantages of diesel vehicles remain widely appreciated in Advantage's non-prime sector of the market.

Aspen Bridging

Aspen, our Solihull based, property bridging pilot continues to justify its launch last year. Over GBP10m of loans have now been issued, many into the buoyant residential refurbishment market for starter family housing. Costs have been controlled and lending margins and LTVs maintained to budget. We have already seen a number of repayments come through and we are increasingly confident in the long-term viability and prospects for this business.

IFRS9

From 1 February 2018 and for our accounts for the forthcoming year ending 31 January 2019, IFRS9 "Financial Instruments" replaces IAS 39 for the way we value and measure our financial assets. In particular, IFRS9 requires the impairment of our customer receivables to be recognised through an expected loss model rather than IAS 39's emphasis on historical impairment triggers. Good progress has been made on the new methodology and its effect on our accounting policies and receivable values. For illustration, the estimated impact of IFRS9 would have been a reduction of reported receivables by between 0.5% and 2.5% as at January 2017. As this is an accounting adjustment, there is no impact on either the Group's cash flows or on the underlying profitability of its loans.

Treasury

A healthy market and our confidence in lending quality has seen combined investment in Advantage and Aspen this year reach a record GBP53m. As a result, Group borrowings are now at GBP105m and, although this rate of investment is expected to slow next year, we expect further funding facilities to be concluded shortly which will bring total committed facilities to GBP135m. This will provide sensible headroom for growth whilst maintaining gearing at S&U's historically conservative levels.

Dividend

The Group's profit performance and prospects have led the Board to approve a second interim dividend this year of 32p per ordinary share (2016: 28p). This will be payable on 16 March 2018 to shareholders on the share register on 23 February 2018. This means that our first two dividends this year, including the 28p per share paid in November, will total 60p against 52p a year ago, 43p in 2016 and 36p three years ago. These measures are consistent with our aim of returning to twice covered dividends in the near future.

Commenting on the Group trading and outlook, Anthony Coombs, Chairman of S&U said:

"Whilst the political and economic uncertainties inherent in both the Brexit negotiations and a slowing economy remain, S&U continues to demonstrate its historic ability to produce excellent results and strong, sustainable growth. We are confident that will continue."

Our preliminary results for the year ended 31 January 2018 will be announced on 27 March 2018.

[jombaston] 07/12/2017 13:46

There is 'slight' increase in the impairment charge but you have to see this in the context of a family that has been running a credit business over the cycle since 1938 (and motor finance since 1999 with profits up every year).

Conservative provisioning is part of this success. Come next year-end you will be able to compare how this charge compares with what is actually written off. Any excess will bolster reserves for the future.

At some point the downturn that is perennially predicted will arrive. It may be next year, it may be the year after or whenever. Macro variables are notoriously difficult to forecast.

My investment in SUS is based on confidence in the management's outstanding track record in not only growing the business but anticipating and managing the credit cycle.

[aleman] 07/12/2017 11:58

If the population is growing by 300k per year, shouldn't you expect record employment? Still, adjust GDP growth for a workforce growing 1% per year and the economy has been flatlining for a couple of years, hence Claimant Count creeping up and very low productivity figures and wage rises as the hours worked trend eased. Some unemployment is hidden in part-time employment and self-employment. These have both been increasing in recent months since it can pay better than being on Claimant Count. If you allow for these, the underlying UK employment trend probably stopped rising through 2016 and started creeping down through 2017. This weakening trend can only remain hidden for so long and will show itself more obviously soon. You can see a similar trend in car sales and van sales. Van sales tie in with how the UK small business economy is doing. You can see a graph of van sales below. Car and van sales seem tie in better with people getting out of work benefits on Claimant Count than they do with the insufficiently sampled ILO telephone poll. Car and van sales were both down over 11% last month and the trend has deteriorated through 2017. Such large falls historically have been consistent with recession. GDP figures first estimates notoriously overestimate growth at the start of recessions and see signicant downward revisions over ensuing years - revised down by over 1% per quarter at the start of the last recession from first estimate to last.

[buffetteer] 07/12/2017 10:05

Ok how do you counter the fact that there are more people in employment than ever before ...so more need cars

[aleman] 07/12/2017 09:44

Claimant Count bottomed at 716,700 in Feb 2016. In September 2017 it was 806,100 - up 12.5% from the low. These are people claiming out of work benefits. The ILO survey is a telephone poll for households where responses might be untrue. Analysts recommend using the Claimant Count for regional trends because the ILO survey is not accurate enough due to insufficient sampling. Does it really feel like unemployment is at a record low or does it feel like things have gone right off the boil since early 2016?

[buffetteer] 07/12/2017 07:51

That’s not how I read it . They are doing v well and the outlook is fine . It’s all about jobs - if employment remains high the demand for necessary transport will too . With record low unemployment SUS will continue to perform

[pugugly] 07/12/2017 07:21

Trading statement out

More caution than usual - although management always are cautious - Possibly pale pink warning flags but (imo) nothing serious - Major drivers will be macro-economicss and political landscape - Other views ??

[plasybryn] 06/12/2017 11:39

Interims tomorrow

[firtashia] 10/11/2017 13:52

Positive movement in the share price since the start of the month, hopefully indicating a change in sentiment(at last).

[topvest] 20/10/2017 16:35

I've bought a small opening position here. Its a quality company that should do reasonably well in the medium term as its soundly managed. Unlike some other lenders!

[cwa1] 09/10/2017 12:11

Hoping this hasn't been posted before. Edison analysis:-



Snippet:-

Outlook
While there is regulatory concern over the growth in consumer lending in general, including the overall motor finance market, S&U does not offer PCP contracts, which have been the main source of growth and concern in this area. With most of its lending being used to fund used cars (average loan c £6,200), which provide customers with transport to work, S&U sees its main risk exposure as being to a worsening of credit conditions generated by higher unemployment rather than a fall in motor residual values (see page 5). Meanwhile, although unit sales of second-hand cars have softened, there is still scope for S&U to gain market share (from c 1%) and it reports robust and good quality demand.


Valuation: Still cautious
Taking into account our peer comparison and a valuation based on an ROE/COE model, we maintain our valuation at 2,700p per share suggesting significant upside from the current share price. Reversing the ROE/COE calculation suggests that the current price is factoring in a cautious cost of equity of nearly 12%.