Research, Charts & Company Announcements
Research Tree provides access to ongoing research coverage, media content and regulatory news on S&U. We currently have 34 research reports from 3 professional analysts.
S&U’s year-end update confirms strong growth has continued at the main motor finance business with customer numbers up 26%, while credit criteria have been tightened to underpin the quality of receivables prospectively. Confidence in the property bridging business is growing, although it remains at a trial stage. Overall trading is in line with management expectations and our estimates are unchanged.
S&U’s trading update for the period since its half-year end confirmed that it is trading in line with expectations and our estimates are unchanged. Transactions and receivables outstanding continue to grow even though underwriting criteria have been tightened. Impairment rates have edged up further but should stabilise and reverse as the loan book mix evolves.
The trading update supports our FY18 forecast assumptions. FY18 forecast earnings growth of 18% reflects the inherent “momentum in the system” from loan activity in recent years. The group benefits from a highly resilient business model; whilst competitive activity in the car financing market has had some impact on product mix and impairment, the group is not exposed to the PCP market and, with an average loan of £6,200, the prospect of declining residuals on the business model is minimal. Whilst the shares have staged a notable recovery over the past six weeks, a modest rating of 12x provides significant scope for sustained outperformance from these levels
First half loan growth at S&U’s motor finance business remained strong at 30%, even though lending criteria have been tightened following a previous mix change towards higher-risk customers. Impairments are set to stabilise as the portfolio rebalances, while the company’s focus on providing hire purchase loans to non-prime borrowers for used vehicles using a well-established underwriting system should provide reassurance to investors concerned about the wider motor finance market.
Interim results highlight the inherent “momentum in the system” from loan activity in recent years that supports our double digit earnings growth projections for FY18 & FY19. The group benefits from a highly resilient business model; whilst competitive activity in the car financing market has had some impact on product mix and impairment, the group is not exposed to the PCP market and, with an average loan of £6,200, the prospect of declining residuals on the business model is minimal. Sector sentiment has weighed heavily on the share price resulting in a single digit valuation which does not reflect the quality of earnings. Consequently, we believe the current share price presents an attractive buying opportunity for value investors whilst also delivering a superior yield.
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The half year end trading update should serve to reassure investors on the robustness of the S&U model; the group is not exposed to the PCP market and, with an average loan of £6,200, the prospect of declining residuals on the business model is minimal. Whilst competitive activity in the car financing market has had some impact on product mix and impairment, we are confident these metrics are factored into our model and believe the group is tracking to deliver our forecast of 18% earnings growth for FY18. The group has the benefit of inherent “momentum in the system” from loan activity in recent years that has been maintained in H118, which will drive growth into FY19 and beyond. Long term investors should recognise the quality of earnings that is not reflected in a single-digit rating.
The AGM update highlights Advantage Finance performing well and the Group tracking in line with our forecast 18% earnings growth for FY18. The meaningful uplift in new loan transactions in the year to date will support the inherent “momentum in the system” from loan activity in recent years which will drive growth in FY18 & FY19. Whilst the shares have been impacted by negative sentiment on the car financing market, we are confident the group can fine tune its product into changing market dynamics to maintain bottom line leverage. We believe the scale of market opportunity and visibility over future earnings growth rates should attract a premium. Double digit earnings growth warrants a mid teens rating which would equate to a share price nearer 3000p on a one year view. As such, the underperformance of the shares creates a strong buying opportunity.
S&U’s FY17 results showed continued strong growth in motor finance receivables with an increase of 33%. Competition has had some effect on cost of sales and mix change has been reflected in an expected increase in impairments but pre-tax profit growth was still above 20% and the outlook remains encouraging. The Aspen Bridging finance pilot may provide another avenue for growth while it is reassuring that management is taking a prudent approach in this new area.
28% earnings growth in FY17 reflects strong demand for nonprime used vehicle loans supported by significant available funds which has enabled the Group to accelerate investment into the market opportunity. This inherent “momentum in the system” is driving top line growth into FY18 (Arden forecast revenue growth +20%). With a highly cost-efficient model, we are confident the group can fine tune its product into changing market dynamics to maintain bottom line leverage; our FY18 and FY19 PBT forecasts are unchanged. We believe the scale of market opportunity and visibility over future earnings growth rates should attract a premium and we stand by the view that the shares warrant a mid teens rating which would equate to a share price nearer 3000p on a one year view providing scope for meaningful upside from current levels.
In its year-end update, S&U confirmed FY17 finished strongly and in line with market expectations. Advantage motor finance recorded a 32% increase in customer numbers and the impairment ratio is running in line with expectations. Funding remains in place for further growth at Advantage and the bridging finance pilot, which is now open for business.
S&U’s December trading update was reassuring, confirming strong growth in both customer numbers and receivables in the Advantage motor finance business. While impairments relative to revenues have ticked up, this was in line with management expectations. Our estimates are essentially unchanged and the valuation appears conservative given continued growth potential at Advantage and the new opportunity that the bridging finance pilot may provide.
The H217 trading update confirms S&U tracking to our FY17 earnings growth forecast of 28%. The group has accelerated investment in FY17 into the strong demand for non-prime used vehicle loans which has been supported by significant available funds. This has generated inherent “momentum in the system” that will sustain superior earnings growth rates into FY18 and FY19. Despite this, the shares have underperformed in recent months, weighed down by adverse sub-sector sentiment. Consequently, a rating around 12x is inconsistent with growth prospects and we expect confirmation of superior growth rates in FY17 should now provide the catalyst for a meaningful share price recovery. S&U warrants at least a mid-teens rating implying 50% upside from current levels and we re-iterate our conviction Buy stance.
S&U’s car finance business, Advantage, continues to make strong progress and has recorded compound annual growth in customer receivables of 34% in the last five years. The business is set to remain the principal growth driver for the group, but S&U has identified secured bridging finance as a potentially attractive area in which to deploy some of its lending capacity and plans to launch a pilot business by the end of 2016. If fruitful, this business would provide both diversification and an additional avenue for growth.
H117 earnings growth of 36% reflects strong demand for nonprime used vehicle loans supported by significant available funds that have enabled the group to accelerate investment into the market opportunity. This has generated inherent “momentum in the system” that will drive superior earnings growth rates in FY17 and FY18. This strong growth profile is not reflected in the current valuation; the relationship between valuation (FY1 PE: 14.4x) and growth rate (27.6%) is highlighted by a FY17 PEG ratio of 0.5x. We believe future growth prospects fully warrant an upper-teens rating and we anticipate that the shares will significantly outperform over the coming year.
Research Tree provides access to ongoing research coverage, media content and regulatory news on S&U. We currently have 34 research reports from 3 professional analysts.
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Two years ago, when the share price was 290p we wrote a note (31 March 2016 “Stick with it”) observing that our 33% upside 12 month target price had been achieved in a week, following strong results. This time, the feat has all but been achieved in one day! In this note we update the investment case, set out a bullish growth scenario in relation to borrowing limits and discuss further details of yesterday’s very strong results. In light of the market reaction to the results and the evident acceptability of higher P/E multiples on what we regard as conservative EPS forecasts, we raise our target price further, as detailed below, and reiterate our buy recommendation.
Companies: Burford Capital
This book is split into two parts. The first part is thematic and focuses on the UK North Sea, where we discuss the potential for smaller companies to benefit from making acquisitions of producing assets. This is based on a screen of potentially available assets, and their likelihood of being available for sale. In the second part, we include profiles of the oil and gas companies in our coverage, and take the opportunity to update several of our models and recommendations. We intend this to be the first in a series of periodic publications focusing on themes within the oil and gas sector.
Companies: JOG IOG RRE SQZ FPM PMO ENQ PMG AMER BLVN GENL GEEC HDY HTG HUR IOG LAM RKH
We have updated and added FY19e forecasts post completion of Impax’s acquisition of US-based Pax World Management LLC. In addition to greater scale reflected in the £11.225bn end January AUM, that extended Impax’s product portfolio, marketing reach and client base. We expect an immediate boost to adjusted EPS net of (a) the cost of servicing new debt secured to finance the acquisition and (b) an issue of 2.66m new shares at 170p.
Companies: Impax Asset Management Group
e il futuro
Companies: ABBY BDEV BWY BKG BVS CRN CSP CRST GLE INL MCS PSN RDW SPR TW/ TEF WJG
In the March 2018 edition of the Hardman Monthly Newsletter, Nigel Hawkins addresses the attractions of quoted infrastructure funds that maintain a low profile.
Companies: OPM ABZA AVO AGY APH ARBB AVCT BNO BUR CMH CLIG COS DNL EVG GTLY GDR INL MCL MUR NSF OBT OXB PPH NIPT PHP RE/ REDX SCLP SCE SIXH TRX TON VAL
Prudential announced operating profit of £4,699m (up 6% lfl) and net profit at £2,390m (up 24% lfl). It also announced a major event: the demerger of M&G Prudential from Prudential plc. to focus on regions with extreme rapid growth. M&G will have the opportunity to improve its profitability through more control over its capital allocation. The insurer’s status of a good dividend payer should be kept thanks to the cash generated by the retained businesses.
Having shown some signs of stability, markets have fallen over the last fortnight, due, in part, to concerns over potential trade tariffs which does not augur well. As the marathon of company results runs on, the majority have been as anticipated and will provide us a better insight into the outlook for corporate UK generally. However, the problems facing some retailers are clearly apparent. We have also continued to see significant M&A activity. In Share News & Views, we comment on APC Technology*, Hunting, James Fisher and Sons, PCF Group*, Ricardo and Swallowfield.
Companies: APC BMS CRPR ECSC EUSP FDM GETB PCF SNX SPRP TCN W7L
HarbourVest Global Private Equity (HVPE) offers broad, selected exposure to leading private equity managers globally, and has a highly diversified underlying portfolio. HVPE celebrated its 10th anniversary in December 2017, and its 10-year sterling NAV total return of 12% pa is ahead of its global listed equity benchmark’s 10% pa return, as well as the 6% pa return of the LPX 50 Index, representing its global listed private equity peers. However, an 11% gain in sterling versus the US dollar (HVPE’s functional currency) has weighed heavily on its one-year sterling returns. Looking ahead, HVPE believes its unique access to HarbourVest funds should enable it to capture the opportunities created by key global megatrends that are expected to dominate private markets over the next 10 years.
Companies: Harbourvest Global Private Equity
This morning’s pre-close trading update confirms that MAB has achieved good growth in 2017 and that 2018 has started well. Specifically: 14% yoy rise in average adviser numbers to 1,008 (31 Dec 17: 1,078); 17% rise in revenue to £109m (1H17: £50m; 2H17E: £59m); 3% increase in average revenue per adviser (i.e. productivity) Group PBT for the year 2017 is “in line with the Board’s expectations” Cash over £22m (including over £13m of unrestricted balances) The number of Appointed Representatives (ARs) which use MAB continues to grow. Peter Brodnicki, CEO comments “[MAB has] a strong pipeline of new ARs and we remain confident about delivering our growth plans, both organically and from new ARs.”. Full year results are due on Tuesday 20 March 2018.
Companies: Mortgage Advice Bureau
2018 is the year of the Great Exhibition of the North. This summer, Newcastle and Gateshead will play host to a government-sponsored, 80-day marathon of events. Billed as the largest event in England this year, the Great Exhibition will showcase the best of the North East’s art, culture, design and innovation and we expect it to highlight the region’s ongoing success in high-end engineering, technology and life sciences. It may also reflect on the success of the North East’s plcs, the most striking example of which is Sage’s transition from 1980’s start-up to £9bn FTSE100 stalwart. We remain on the look out for the next Sage and expect the region to continue to produce attractive IPO candidates following Ramsdens’ success last year. Overall 2017 was a positive year for the region’s listed companies, one highlight of which was the takeover of Quantum Pharma, an N+1 Singer client, by Clinigen for £150m. We are confident that 2018 will be another successful year. Our top regional picks this year are Hargreaves Services, Zytronic and Applied Graphene Materials.
Companies: AGM BWY GRI GRG HSP IDH KMK NTG RFX UTW VNET ZYT
Underlying trends were broadly in line with expectations as are management’s mid-term profitability targets. The revival of market volatility is good news for CIB activities but the $/£ weakness less so. The stock continues to show a large valuation discount, only partly justified by Brexit-related risks in our view.
Redde has delivered positive interim results reporting clear benefit from the new insurer relationship secured in late 2016. Underlying growth in H1 has been sustained into H2 thus far. Innovation and investment in value-add for partners continue. The board has declared a 5.5p interim dividend – slightly ahead of our 5.25p forecast. We upgrade EPS by 8% in FY18e and 3% in outer years. We see value in the shares – a 15x PER implies a 190p/share intrinsic value, whilst a 5% yield equates to 240p/share.
L&G posted excellent figures: an increase in its operating profit by 32% to £2,055m, in pre-tax profit by 32% to £2,090m and in net profit by 50% to £1,902m. This exceptional performance is due to the positive impact of the mortality release (£332m) and the one-off US tax benefit (£246m). The proposed final dividend is 11.5p/share, bringing the total dividend to 15.35p/share. Excluding exceptional items, no major changes are expected in our model. We keep a positive opinion on the insurer.
Companies: Legal & General Group
The Russian economy returned to growth in 2017 and the FX market was relatively calm, creating the conditions for a significant improvement in the warehouse market supply-demand balance, with rents stabilising. Against this backdrop, Raven produced strong headline earnings, including land sale gains, and a solid underlying performance, including a first benefit from 2017 accretive acquisitions. Although not reflected in our forecast, further acquisitions are likely, funded by existing cash resources, with the potential to more than offset rent reversion to market levels and return the company to growth.
Companies: Raven Russia
Old Mutual announced a pre-tax adjusted operating profit of £2bn, up 22% compared to 2016’s. IFRS profit after tax attributable to equity holders of the parent was £909m, up 59%, in line with our estimates. The second interim dividend is 3.57p/share. Old Mutual has also announced that the completion of the managed separation is on track for the end of 2018. The new business model will mainly be reflected in our 2019-20 figures.
Companies: Old Mutual