S & U

SUS   £63.7 million   542.5p   BUY

Trading Update              FULL LIST

S&U, the home credit and motor finance provider, has announced it “is trading in line with its expectations for the year to date” and that “the resilience of our own performance and current positive trading trends give cause for continued cautious optimism".

The company’s home credit business has increased revenues by 2% in the period since the start of S&U’s year (1st February 2010) compared to the same period in 2009. This is reflective of a 4% growth in customer numbers offset by continued customer borrowing caution in the current economic climate. Collections are reported to have remained robust – with impairment charges down by 2%. The Advantage motor finance business meanwhile is described as having “followed up on a strong finish to the last financial year with an excellent start to this financial year”. It has written more than 40% more new business and with higher initial repayment quality as it enjoys a less competitive market. This has resulted in “encouraging” levels of profitability on revenue up more than 20% on the prior year period, with impairment charges up by 11% in comparison.

Despite £2.4 million of accelerated dividend and remuneration payments made in the first quarter before Government tax legislation changes, this together with the company’s growth was more than funded by trading cash generated and borrowings have been reduced from May 2009’s £27.6 million, to £26.1 million. These are anticipated to “reduce further in the second quarter, increasing the likely headroom available for further organic growth and acquisition”.

COMMENT

House broker Charles Stanley noted a business trending ahead of full year expectations on this announcement, though has left forecasts unchanged for the moment - with the next news flow likely to be a pre-close update in early August. There is however, clear scope for current full-year forecasts of earnings per share of 58.1p and a total dividend of 34.5p to be beaten and the broker also noted “total facilities of £36.7m provide plenty of headroom for both organic growth and bolt-on acquisitions”. However, even on the base numbers the shares trade on a price/earnings multiple of less than 9.4 and yield 6.4%. For both growth and income, S&U remains a BUY.

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