- Specialist lender sees higher volumes in the used car market
- Management confident any legal redress requirements related to the Hopcraft case will be modest
- Aspen Bridging property finance arm generates record advances once more
- Share price has now recovered almost all of last year’s retreat
“Shares in specialist lender S&U are moving toward their highest mark in a year, helped by increased regulatory clarity in the car financing market and strong ongoing progress at its property arm, Aspen Bridging,” says AJ Bell investment director Russ Mould.
“Higher advances at both bode well for both future earnings and also the dividend payment, which equates to a yield of more than 5% and may therefore catch the eye of patient income-seekers.
“This month’s Supreme Court decision (1 Aug) on the so-called Hopcraft car financing case lifts a huge cloud from the outlook at S&U, especially as management continues to assert the company has no history of using Discretionary Commission Arrangements (DCAs). There could yet be some residual uncertainty as the Financial Conduct Authority lays the groundwork for an industry-wide redress scheme, but the company seems confident it can disprove any claims regarding unfair relationships, thanks to its well-established processes and customer relations.
“The lengthy legal and regulatory case that faced the car finance industry did have an effect upon S&U all the same last year, and thus on the share price, too.
“Lending and collections dipped, and arrears rose at car financing arm Advantage, as did impairment charges, while consumers waited for the regulatory and legal findings from the Financial Conduct Authority and the Supreme Court. Advantage’s receivables fell by 15% in the year to January 2025. Volumes and pre-tax income at the operation fell by more than 40% in each instance.
“Overall, group receivables fell just 6% year-on-year, as property finance specialist Aspen Bridging took up some of the slack.
Source: Company accounts. Financial year to January.
“This all explained last year’s drop in annual profits, as loan impairments almost reached the levels seen during the first year of Covid-19, such was the impact upon the car financing market and consumer behaviour.
Source: Company accounts. Financial year to January.
“However, analysts had already thought that pre-tax profits would bounce back in the year to January 2026 and the combination of the court ruling and the company’s latest trading update look to support that view.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Financial year to January.
“Loans at Advantage exceeded budget in the first of the financial year to July and Aspen’s loan book reached a new record high during the period, even as collections were strong.
“Both trends belie nagging concerns over the wider state of the UK economy, even as interest rates crawl lower, and again help to justify analysts’ forecasts of both higher profits and dividends in the year to January 2026.
“S&U traditionally offers three dividends during its financial year – an interim in November, one further interim in March and then a final payment in July. Analysts believe the total payment for fiscal 2026 could recover to 117p a share from the 100p declared for the year to January 2025.
Source: Company accounts. Financial year to January.
“The final 30p-a-share payment for fiscal 2025 took the total in dividends paid to £12.04 in the last ten years – equivalent to two-thirds of the current share price, something that long-term income-seekers may consider appealing.
“Some investors clearly remain sceptical, though, as the current stock market capitalisation of £232 million barely matches its net asset value of £238 million. The bulk of the assets are customer receivables, so that may reflect concerns over future possible impairments, but such a large gap does suggest a lot of bad news is already in the share price.
“The next test of the putative recovery will come on 9 October, with the first-half results.”
