Electric potential for S&U

Second-hand car finance provider S&U (LON: SUS) is set to enter the electric vehicle market. This should give it a head start over most of its competitors.

The Advantage Finance subsidiary is currently reviewing the electric vehicle market and is likely to at least dip its toe in the market in the near future. Management is aware that this will eventually become a major component of the second-hand car market. The prices of electric cars have reduced over the years and that means they have come down to the normal level of Advantage loans.

The resilience of electric batteries is one of the things that needs to be taken into account when making loans. Many electric vehicles have a separate warranty for the battery, but the length of time can vary. Replacing a battery that does not keep its charge is costly.

Electric vehicles are going to be a small part of the business in the short-term but gaining early experience will help S&U understand the risks and how to balance them with the potential returns.


In the year to January 2021, revenues declined from £89.9m to £83.8m, but the key to the profit performance was the huge increase in impairment charge from £17.2m to £36.7m. Pre-tax profit fell from £35.1m to £18.1m.

This reflects Covid-19 uncertainty and a cautious approach. Loan quality standards remain high and cash collection is improving.

Activity levels in car finance have been lower, and this will have a greater effect on this year’s revenues. Fourth quarter volumes had returned to 80% of the original budget level. The number of loans advanced was 15,589, compared with 23,334 in the previous 12 months, although the average value was 3% higher at £6,581. Annual net advances fell from £149m to £102.6m.

Net receivables from car finance were £246.8m at the end of January 2021. Fewer than 3,000 clients are currently on a payment holiday.

Activity levels do appear to be improving and they will be helped by the further easing of lockdown. Investment in digital will help to make it easier for clients to apply for loans.

Property bridging

Aspen Bridging remains a relatively immature business, but the increased activity in the property sector in the second half meant that gross lending increased from £31.3m to £43.5m last year. The profit contribution fell from £1.2m to £800,000, but nearly all that profit was in the second half after a Covid-19 hit first half.

Applications for residential loans are running at record levels and this part of the business should make further progress this year.

S&U has been approved as a CBILS lender so these loans will be backed by government guarantees, but they will be assessed in the same way as any of the other loans.


Group net debt reduced from £117.8m to £98.8m, partly reflecting the lower trading volumes. That was achieved after paying £13m in dividends.

The final dividend of 43p a share takes the total to 90p a share, which is less than the 2019-20 total of 120p a share. It does provide a base from which S&U can grow the dividend again. It provides a yield of 3.9%.

Revenues may improve slightly this year, but it is the level of reduction in the impairment charge that is likely to have a greater effect on profit. There should still be a bounce back in profit and it could be getting nearer to 2019-20 levels in two years.

At £22.80, the shares are probably trading on less than 15 times prospective 2021-22 earnings. The yield is attractive, and the dividend should grow faster than inflation even though management is likely to improve the level of earnings cover from the current 1.3 times.

Motor finance volumes could be back to previous budget levels by the end of this month. Property bridging loans demand remains high.

There is potential improvement thanks to recovering markets and longer-term potential from second hand electric vehicles finance as they become a greater proportion of the cars on the road.

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Andrew Hore
Andrew Hore is the publisher of AIM Journal, which is an online monthly publication covering the Alternative Investment Market.