LON:SUS | S&U Plc - Positive IMS, A Classic John Lee Stock

10th Dec '13 by jjis

5 comments 8034 reads

I thought I would write this up as ironically it did not appear on the Small Cap report today. S&U announced a positive interim management statement today - which you can view here:

http://hsprod.investis.com/ir/sus/ir.jsp?page=news-item&item=1654827276828672

If you have not come across it before it operates in the Home collected credit market 62% and motor finance 38% of Revenues in 2012. Like many stocks recommended by John Lee (investor & author see end of this post) it is a family business spanning a couple of generations and has some large shareholdings by family members including the current chairman. To give you a feel for this here are some extracts from last years report and accounts:

S&U was founded in Birmingham in 1938 by Clifford Coombs, a charismatic figure from South Wales. To escape poverty and a life in the pit, and determined to succeed, he laid the foundations of today’s business. He had a gift for charming and motivating people, whether
they were customers or employees. In those early days, the company sold household goods – pots and pans, towels, blankets and even
dartboards in the home, collecting payments on a weekly basis.
Today, S&U plc is a successful Home Credit and Motor Finance business. The company was floated on the London Stock Exchange in 1961.

S&U’s 75th Anniversary
Over the past 75 years, neither time nor technology has changed this.
This passion has become the guiding purpose of two succeeding
generations of the Coombs family and is, and will remain, the
company’s raison d’être. As a result, and whatever the slings and
arrows of economic fortune, we face the future with vigour and great
confidence. - Anthony Coombs, Chairman. Source S&U Report and accounts 2012 which you can get here:

http://www.suplc.co.uk/docs/S&U%20-%20Annual%20Report%20Jan%202013.pdf

In today's IMS they talk about improved sales and collections and improving customer confidence and debt quality on the Home collected credit side. With regards to recent regulatory speculation around Pay Day lenders and rate capping they say:

"Our Regulators, including the FCA, continue to recognise the unique qualities of home credit for our customers; we regard the recent announcement of potential rate caps for parts of the consumer credit sector, in particular pay-day lending, as benign…

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lightningtiger

10th Dec '13

I spent some time a few days ago looking at bank stocks & S&U came up trumps. It seems to be a good consistent business for the motor trade. The market is right for it now & I think with about 3% dividend, a bit of extra icing on the cake. It is the sort of share you can hold for a long time as a core holding. I currently hold LLOYDS , with hardly any bid & offer spread, & STB ,that has a huge spread.
I must say thanks to HSBC yesterday for buying a few million GLOBO shares (they can easily afford it). Good to see someone from HSBC sees GLOBO as a good investment too right now. I must be the only one that did not sell GLOBO when it was a definite sell.
Personally I would not buy HSBC again, from a few years ago when we held them with the investment club. They have huge profits, a good dividend but the share price movement is room for improvement.
The share price movement with S&U is a good steady upward trend & definitely gets a thumbs up from me.
Cheers from Lightningtiger

jjis

11th Dec '13

Thanks for your thoughts - yes you have to watch out for the spreads on small cap stocks and it is interesting to comapre this one to the banks. Which reminds me I forgot to mention the debt on this one where they have run with conservative gearing of 30 to 40% recently versus the 30 to 40x that the big banks were leveraged at the peak. They also mentioned the increased facilities that they have in place for the medium term which will help to fund their growth going forward.

On the banks, having managed to avoid them in the financial crash I have only picked up HSBC for the yield since then & Barclays more recently post their latest rights issue. They might be worth a look as it is seems to be sorting itself out and the dividend is forecast to pick up quite nicely next year. Currently trading at a discount to Book so if they can get ROE back up then it could recover quite nicely but for now 300p seems to be resistance on the chart.

5th Feb '14

They have announced an in line trading update today which actually reads quite well. I have written it up and added my own thoughts on Compound Income? if that is of any interest?

26th Mar '14

Published on Compond Income? Yesterday.
This small family run home collected credit and car finance company which I have written on before, has reported some more excellent results today. The Turnover was slightly ahead of forecasts at £60.8 million v £60 million (F) as were earnings and dividends which came in at 113.2 pence (+22%) v 110 pence (F) and 54 pence (+17%) v 52 pence (F) respectively. On the dividend policy they said "Our dividend policy has always been characterised by its sustainability. Our habitual emphasis on both growth and stability has seen dividends per share grow since 2009 by 69%, whilst cover over that period has increased from 1.56 to over 2."

Net Assets increased by 14% to £69.4 million while borrowings increased slightly to fund the growth to leave gearing at a relatively conservative (for a finance company) of 46.6% up from 33.7%. Motor Finance continued to be the main driver of growth with profits form this division being up by 42% to £11.5 million on 26% revenue growth. Transaction numbers increased by 38% and net receivables were a record £73.0 million (2013: £52.5 million) as live customer numbers rose to 18,000. The payment performance of new customers is also improving, and collections measuring the quality of recent business and the whole book are at record levels.

While the home collected credit side continued to struggle with profits down by £0.3 million to £5.8 million although they suggested that the second half had seen an improvement in performance with fourth quarter advances up by 8%. They also opened two new branches in the year and since the year end they have opened a further three branches and made a small acquisition in Scotland. They are also rolling out a pre paid debit card product to their existing customers who want to purchase goods and services on-line. They are also planning, like Provident Financial, further investment in I.T. for home credit to improve productivity and customer service and are on the look out for further add on acquisitions.

I'm still happy to run with this one (run your winners) even though the yield is now only around 3% as it is growing strongly and the Company seem to be reasonably upbeat about current trading and the outlook. Talking of which I'll leave you with the Chairman's comments on this:

"Notwithstanding this winter's appalling weather and the doom saying of the OECD, IMF and elsewhere of only nine months ago, both the British economy and consumer confidence are returning to unmistakeable, if not yet robust, health. This is evident in our current trading and prompts our confidence for the coming year.

But, S&U's ability to prosper from such a climate is not axiomatic. We never take progress for granted. That depends upon the dedication, energy and commitment of all those who work with us. Both within the Company and to the outside world, S&U has always portrayed itself as a family business. We make no apologies for this. It has been the bedrock and impulse for our growth over 75 years of trading. It will ensure even greater progress in the future."

20th May '14

IMS for the period from 1st February to 19th May 2014 ahead of their AGM today. This showed further growth of 49% in receivables versus the prior year at the Advantage motor finance side.This was helped by a growing band of introducer's and brokers and they say margins have been maintained and debt quality is at its best ever. The Home Credit side was described as very promising as sales and collections exceeded expectations as they took advantage of consolidation in the industry. They opened three new branches and customer numbers were up by 6,000 and they also touched on regulation and the recent finance raised from M & G.

Talking of finance, debt has increased on the back of the growth in the business with gearing indicated at 58% which they say leaves adequate headroom plus they say they are continuing to pursue a deposit taking licence. All in all it looks like a strong start to the year and a good basis for further strong 20%+ earnings growth this year, similar to that reported in the last three years. Thus it still seems reasonable value on 14x or so this years earnings with a 3%+ yield. As a result of this growth and the rating I notice that it qualifies for the JIm Slater Zulu screen (low PEG).

Compund Income?

S&U Plc - positive IMS, a classic John Lee stock

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Jjis

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