S&U Update Note - Positive Results Overall
This week’s preliminary results from S & U confirmed the trends highlighted in the trading update in February. The core Advantage non-prime motor finance business posted its 19th consecutive year of profit growth. This despite headwinds which saw an increasingly competitive market combined with S & U’s decision to impose stricter underwriting criteria, which caused a fall in the total number of loans outstanding. Notwithstanding increased competition, Advantage’s relatively low market share (c. 1.0%) in a UK second hand car market growing at 7.0% suggests some immunity. Aspen Bridging Finance continued to grow, adding 62 loans at an average size of £375k in the year and taking the total book to £18.3m after the repayment of £18.3m, including up-front retentions. The book is guided to reach £30m by the end of calendar year 2019.
S&U - Update Note
This week’s trading update from S & U confirmed the trends highlighted in December. The market for its core Advantage non-prime motor finance business remains positive notwithstanding UK economic uncertainty and greater competition. Since the November 2018 decision to increase investment in the bridging business, Aspen Bridging Finance’s experience has been positive. This fledgling business is set to contribute to earnings in the year to January 2019. We reflected the slower pace of Advantage loan growth in forecasts immediately following December 2018’s trading update, and do not feel further adjustments are necessary based on the release yesterday. Current year and 2020/21 income (PBT, EPS and DPS) forecasts, however, are adjusted further to reflect the slower loan growth at Advantage in 2018 and our expectation that this will continue for at least the first half of calendar 2019. We view this as a timing issue and one which highlights the continuing benefits of S & U’s approach. It continues to invest in its market-leading systems, is a sensible competitor and maintains a healthy funding position.
Gordon Dadds Update - Acquisition of Ince UK & Placing
With the acquisition of Ince UK, Gordon Dadds completes a transformative 2018 and starts 2019 actively with an over-subscribed placing. Ince UK brings over £30.0m of expected annual fee income, a significant addition to the Group’s skill-set and the scope for considerable cost synergies. In the last 12 months, it has acquired almost £40.0m of potential new revenue through four acquisitions for a total of £35.0m and an initial outlay of less than £15.0m. This is a testament to the Group’s innovative operating model and its attractiveness to both firms and fee earners alike. Given the potential scale of Ince UK, our 2020 forecasts increase substantially while we have also raised our current year estimates to reflect the Ince deal and the growth apparent in the interim results. With £11.5m raised by February 2019, the Group should finish the current year with net cash. Based on our DCF approach, its theoretical value is measurably above the current level.