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S&U Update Note - Preliminary Results

Updated: May 26, 2020

S&U released its preliminary FY20 results yesterday morning, which demonstrate considerable resilience against a backdrop of election and Brexit turbulence and weakening consumer demand - although that already feels like ancient history. The key highlights from FY20 include revenue up 8% to £89.9m, PBT up 2% to £35.1m, and EPS up 3%. Receivables from customers rose 9% to £301.8m. Advantage posted its 20th consecutive year of profit growth and achieved its 9th consecutive year of a >15% ROCE. Meanwhile Aspen grew PBT to £1.2m in its third year of operation, up 44%. Receivables from customers grew 15% to £21m, though it was higher before an accelerated rate of repayments in the fourth quarter. In response to the COVID-19 threat, management has been highly proactive – from ensuring in February that the business could operate remotely to continuously stress testing the lending book and updating its under-writing models to account for the current situation. S&U also confirmed that it will neither furlough its staff nor take government assistance. Both businesses will undoubtedly be impacted – on the analysts call management indicated that incoming inquiries to Advantage had dropped by c.80-85% and that the residential property market is likely to freeze while the country is locked down. Whilst ultimately the fall in loans written will drop through to financial performance, there is generally a lag, so if automotive and property transactions are merely delayed, rather than cancelled, then S&U could still see its loan book growth return to the historic trend. It’s also worth noting that as the number of new loans advanced shrinks, cashflows generally improve so the final dividend (50p), which was confirmed today, is safe. Management re-iterated their intention to continue to grow the dividend at a similar rate to EPS. Ultimately, S&U enters this crisis in a strong position with plenty of headroom in both facilities and covenants, and with cash being released as new loans advanced fall but collections (so far, at least) hold up surprisingly well. Management continue to control what they can and take a conservative approach to planning for what they can’t. Whilst clearly there have been major changes in the outlook for this year, management remains optimistic and for good reason: S&U has the right management team & conservative, customer-centric culture, the right products, and the right balance sheet to survive turbulent markets.

Read the full note on Research Tree, here.


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