S&U’s AGM trading update provides reassurance on the motor finance business, Advantage, where receivables growth is modest but in line with our expectation, while impairments and risk-adjusted yield are showing improvement. There is also confirmation of continued development of Aspen property bridging. The shares have shown strength recently, but are still modestly rated in terms of P/E and offer an attractive yield.
At Advantage Finance, receivables growth in the period to 22 May was 3% y-o-y to £263m or approaching 2% compared with the year end. While muted, this is encouraging in the context of the slowdown in transactions in H219, and the resulting sequential decline in receivables prompted by a tightening of credit criteria and competitive pressure. Advantage has not relaxed its credit criteria or discipline over the level of commission payments it is prepared to pay. The number of loan applications is at a record level of 108,000 per month and early indicators of credit quality are encouraging. The latter follows the adjustment of criteria mentioned, while the recent capital markets presentation confirmed that Advantage has integrated data from two credit agencies into its approval system, holding out the prospect of further improvements in performance over time.
Aspen property bridging has continued to grow its loan book (from £18m at year end to £22m) and has doubled its active loan pipeline over the period.
The level of group borrowing has increased from £108m to £114m with receivables growth while headroom remains good given recently increased funding facilities of £160m. Our estimates are unchanged following the update.