Buy leaner and more focused S&U

Advantage Finance's growth is founded on strong relationships, built over years with brokers that generate between 85 and 90 per cent of its business. Customer numbers rose to an all-time high of 35,600 during the first quarter of the year, an increase of 3,000 on the end of last year. This built on customer growth of a third last year. Given that the total used car finance market was estimated to have grown to 1.1m transactions last year, and S&U completed 15,100 of these loan transactions, there is plenty of opportunity for the lender to grab a greater slice of the growing motor finance market.

The economic backdrop continues to look good, too. Historically low interest rates, increasing wages and high employment are supportive of consumer appetite for debt. Used car sales are also growing - up 7 per cent year on year during the final three months of 2015, according to figures from Experian - and more car buyers are choosing to finance purchases with loans. A continuation of this trend should shore up demand for motor finance from sub-prime lenders such as S&U.

The specialist lender is a much leaner, more focused operation, following its sale of home credit provider Loansathome4u in August. At the time S&U said the division was very management intensive and did not have "anywhere near" the growth potential its motor finance operations had. For example, while motor finance grew profit by 48 per cent in the year to the end January 2015, home credit "only" managed 11 per cent.

S&U gained £80m in net proceeds from the sale, £34m of which was earmarked for reinvestment into the motor finance business. Management also put aside £13m to develop a separate vehicle lending product for small- and medium-sized businesses. Shareholders also got a 125p special payout last November. Management is also keeping its eye out for acquisitions within the specialist credit space.

Shorn of its home credit business, S&U significantly reduced its leverage to 9 per cent from 45 per cent at the end of July last year. Since the end of the January leverage has risen to 19 per cent, as management has continued to invest in Advantage, currently at a rate of £4m a month. However, it expects leverage to be kept below 55 per cent during the next four years.