- Falling loan advances at Advantage
- Reported profits to undershoot consensus
The share price of S&U (SUS) came under pressures after the specialist auto and property bridging lender issued a profit warning ahead of its full-year release on 9 April.
The downbeat trading update covered a seven-week period through to 31 January 2024 and detailed falling loan advances for its Advantage motor finance business. Live monthly repayments at Advantage for the second half of the year fell to 90 per cent of what was due, representing a four percentage point decline from the first six months of 2023. Yet the division’s performance doesn’t necessarily square with 2023 data from the Society of Motor Manufacturers and Traders which showed that the UK's new car market recorded its best year since the Covid-19 outbreak.
In contrast to the trading issues at Advantage, cumulative repayments at S&U’s secure bridging loan arm Aspen were estimated to be “no less than 50 per cent up on last year,” although the rate of increase has slowed recently. Nonetheless, monthly mortgage approvals, “on which around 50 per cent of Aspen repayments depend”, are on the rise, suggesting that underlying trading conditions are improving.
S&U said its borrowing stood at £224m, compared with £192m in the previous year, and that funding facilities of £280m provided “comfortable headroom” for growth opportunities, although it also noted that the “increased and not readily transferable cost” of borrowing means that interest payable has doubled to £15.1mn.
What S&U describes as an “intemperate economic climate” is undermining profitability with the expected pre-tax figure now pitched at 10-15 per cent below 2023 consensus on increased provisioning under the IFRS9 accounting standard. S&U is certainly not an outlier on the trading front. The UK is experiencing elevated levels of profit warnings as the cumulative impact of persistent inflation and higher financing costs have constrained household budgets. If that wasn’t enough, shareholders will also need to take account of developments in the Financial Conduct Authority’s review of auto lenders’ historic commission arrangements.
Last IC View: Buy, 2,270p, 3 Oct 2023
