Motor finance provider S&U (LON: SUS) has prospered where less sensible competitors have fallen foul of their overambition and lack of controls. The core motor finance business has 19 years of consistent growth and the group has started up a new growth business.

S&U provides finance to buyers of used cars. The new car market has slumped over the past couple of years, but the used car market has held up. S&U has always had a prudent approach to its lending but there were additional difficulties last year as some borrowers were hit by income concerns.

2018-19 figures

In the year to January 2019, revenues were 12% ahead at £89.2m and pre-tax profit improved from £30.2m to £34.6m. The motor finance division increased pre-tax profit by 11% while the property bridging finance division swung from loss to profit.

The motor finance division, which is branded Advantage Finance, achieved 15% return on capital employed for the eighth successive year even though impairment charges were increased from £19.6m to £23.2m, after a big jump in the previous year.

More than one million applications were received last year but S&U only provided finance to around 2% of them. New business levels declined last year, but they were at the second highest level.

The average cost of each deal rose from £692 to £727 as more business was sourced through internet brokers and there was increased competition for business. Overall, cost of sales fell due to lower levels of new business.

S&U is involved in the non-prime market, but it is focusing on higher quality tiers of the market. Technology is being used to improve assessment of applicants.

An FCA report designed to clamp down on excessive motor finance charges does not appear likely to greatly affect S&U because it already complies with the relevant regulation and has a flat fee commission model.

Bridging potential

On top of the steady performance of the motor finance business, S&U has the added growth potential from the new bridging finance division.

Aspen Bridging has been trading for two years and it has already moved into profit. There was a swing from a loss of £298,000 due to start-up costs to a profit of £838,000 on revenues of £2.84m.

This is a growing market, but S&U started cautiously in order to learn about the business. Demand is increasing due to the need for more housing. Mintel forecasts the market will increase from £7.5bn to £10bn by 2021.


Motor finance will continue to dominate profitability and the bridging loan business is likely to be important in helping profit grow.

Group facilities have been increased to £160m. There were borrowings of £108m at the end of January 2019, so this provides headroom to grow both parts of the business.

S&U offers an attractive, growing yield. This year’s dividend was increased from 105p a share to 118p a share. This not quite twice covered by earnings, which is the medium-term plan. At 1880p a share, the yield is 6.3%.

Even if there are setbacks, this is a business that can weather those problems unlike some of its over-expanded rivals.

The S&U share price fell be around three-fifths between the middle of 2007 and the end of 2008. There has been a sharp fall in the share price from its peak last year, but it is still more than seven times the price at the end of 2008.

S&U has tightened up its assessment of borrowers and impairment charges should not grow as rapidly as in the past two years. Growth in pre-tax profit is likely to be more modest this year, but the dividend will continue to rise providing an attractive yield.