Why you should buy S & U for growth, income and value
Motor finance and bridging lender S & U (SUS) offers a winning combination of growth at a reasonable price and a high dividend yield to comfort income investors.
Profits are up 10 years in a row yet the shares are trading on just nine times current-year earnings while the dividend yield stands at 5.5% with the pay-out covered more than four times.
RECORD PROFITS IN MOTOR FINANCE
The Advantage motor finance business racked up its 19th consecutive year of record profits in the 12 months to 31 January with pre-tax earnings of £33.6m.
Despite the slowing economy and lower levels of consumer confidence, Advantage received over 1m applications for finance of which just over 2% or 21,000 advances were approved.
The used car market has held up much better than the new car market with almost 8m vehicles sold last year, a decrease of just 2% according to the Society of Motor Manufacturers and Traders (SMMT).
In the first quarter of this year the market was flat with just over 2 million cars sold and used-car values are holding up according to both Advantage and the SMMT.
Superminis are the most popular buy, taking a third of the market, while demand for hybrid, plug-in hybrid and pure electric cars is growing at a 30% annual clip.
BRIDGE FINANCE GROWING FAST
Using its expertise in consumer vetting and lending, S & U has branched out into the property bridging market with the Aspen brand.
Aspen operates in the home refurbishment and investment end of the property market with loans typically repaid by onward sale or re-mortgage.
Using a conservative valuation policy, its gross average loan size is £375,000, a space the mainstream banks are ‘too inflexible and slow to fill’ which allows Aspen to develop bespoke products and a fast service.
Chairman Anthony Coombs is pleased not just with the growth of the loan book, which now stands at £22m, and the record deal pipeline, but the fact that in just its second year of operations the business has made a sizeable profit.
He believes that Aspen can generate ‘controlled’ revenue growth of at least 50% per year during 2019 and 2020 as the ‘value’ end of the market expands faster than the rest of the sector.
Market research firm Mintel sees the annual market for bridging loans growing from £7.5bn in 2018 to £10bn in 2021.
On just nine times this year’s forecast earnings and a yield of 5.5% S & U, looks like a stock to tuck away for the long term.