Good morning!

Motor finance: on Friday evening, the Supreme Court overturned the Court of Appeal's ruling in two out of three test cases. 

From the BBC:

Richard Coates, head of automotive at law firm Freeths, said: "The judgment opens the gateway for consumers to bring claims under the Consumer Credit Act, where particularly large commissions have been paid and the relationship is therefore unfair."

However, it is thought the ruling will prevent large-scale claims from millions of motorists.

Lloyds Banking (LON:LLOY), Close Brothers (LON:CBG) and S&U (LON:SUS) have responded today. The share price of Secure Trust Bank (LON:STB) is up 13%, but they have elected not to make an announcement.

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12.15pm: wrapping it up there, thank you.

Spreadsheet accompanying this report: link (last updated: 8th July) (work-in progress).

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Companies Reporting

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Graham's Section

S&U (LON:SUS)

Up 13% to £19.64 (£239m) - Supreme Court Motor Finance Ruling - Graham - GREEN

S&U are delighted with the Supreme Court ruling. Before getting into S&U’s reaction, let’s explore the ruling a little bit.

It hinged on whether or not car dealers, also acting as credit brokers, had a “fiduciary” duty to customers.

The way I always understood it, a fiduciary had to have special power over someone else’s affairs, with a high level of freedom to act on that person’s behalf. In the financial world, for example, a fund manager or a pension trustee would have fiduciary duties to the people whose money they were managing. Outside of the financial world, a doctor would have a fiduciary duty to their patients.

So for someone to have a fiduciary duty in the course of their work, it was not enough that they were simply providing an important service to someone else: there had to be something about the nature of the service which meant that conflicts of interest or other types of ethical failure could have major negative consequences on the customers, due to the amount of power they have over their customers’ affair.

As I’ve said before, I found it very strange that the Court of Appeal found that car dealers had a fiduciary duty to their customers. With all due respect to the industry, a car dealership is one of the very last places on earth where I would walk in and expect to receive fiduciary care.

The Supreme Court has now (in my view) fixed the problem created by the Court of Appeal.

In their judgement, they provide what they call “a classic description of a fiduciary”:

“A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary.”

“A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal.”

When it comes to a car buyer, a car dealer, and a lender trying to make a deal, the Supreme Court concludes:

“Neither the parties themselves nor any onlooker could reasonably think that each of the participants to such a negotiation was doing anything other than considering their own interests…

“...at no time in the negotiation of any of these transactions did the dealer give any kind of express undertaking or assurance to the customer that in finding a suitable credit deal for the customer it was putting aside its own commercial interest in the transaction as seller.”

So there is no fiduciary duty, and no reasonable expectation that the car dealer isn’t attempting to make a profit.

That’s a clear win for common sense, in my book!

On the question of “bribery” (as it is alleged that a motor finance commission can constitute a “bribe” if not disclosed properly), the Supreme Court provides a lengthy discussion. But:

In every case we have cited in which a claim based on bribery was upheld, the recipient of the benefit was someone who owed a fiduciary obligation…

The conclusion that liability for bribery… is dependent on the recipient of the bribe being a fiduciary, means that the law avoids a problem which would otherwise arise

So if there is no fiduciary relationship, the question of bribery does not arise.

It all seems perfectly logical to me, and S&U agrees. Here is Chairman Anthony Coombs:

This decision is a victory for common sense. It will significantly boost confidence throughout the motor finance industry and benefit lenders and consumers alike in attracting investment and increasing competition. As such, it is entirely consistent with the Treasury's recent emphasis on regulation which encourages growth and which will, in the words of the Financial Conduct Authority, "ensure the integrity of the motor finance market, so that it works well for future consumers."

The CEO of S&U’s motor finance arm, Advantage Finance, also welcomes the news.

There is still the possibility of some redress being provided for some customers, but I agree that any impact on S&U should be minimal. Everything I knew about Advantage Finance suggests to me that it’s a responsible lender that treats its customers very fairly.

From today’s RNS:

The Supreme Court, however, did uphold the lower court's view that commission paid by lenders which was inflated relative to the total cost of credit or which misled unsophisticated customers, may lead to an "unfair relationship" under section 148 of the Consumer Credit Act. Advantage notes that the FCA has announced its intention to consult on a redress scheme which covers both DCA arrangements and cases possibly involving an unfair relationship. Advantage reiterates that it has never used discretionary commission arrangements and feels very confident that its longstanding quality of customer service will mean that any unfair relationships found would be minimal.

Graham’s view

The long-running regulatory and legal saga is coming to an end, which is great news for S&U (let me repeat that I think S&U has been entirely innocent of any wrongdoing all along).

The company’s market cap has recovered now to its last-published net asset value (£238m of Jan 2025) and from my view that’s the baseline in terms of what the company is worth. With excellent management, a high degree of shareholder orientation, and continued growth prospects in both of its divisions, I am happy to stay GREEN on this. I note also a StockRank of 97!

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Property Franchise (LON:TPFG)

Up 1% to 540.5p (£344m) - Half Year Trading Update - Graham - GREEN

The Property Franchise Group PLC, the UK's largest multi-brand property franchisor, announces its trading update for the six months ended 30 June 2025 (the "Period"), ahead of publishing its interim results on Wednesday 10 September 2025.

Let’s check in on how TPFG is doing.

The merged with Belvoir in March 2024, so there has been a step-change in the size of the overall group, and I'd suggest focusing on like-for-like figures today.

Key points:

• Revevenue +50% (£40.3m), like-for-like revenues +8%.

• Lettings like-for-like franchising fees +5%

• Sales like-for-like franchising fees +18%

The bounce in like-for-like sales fees is a nice sign of activity in the market. Lettings can be expected to remain more stable, on average. But the company does acknowledge that higher sales activity was pulled forward to Q1 by the Stamp Duty changes.

H1 cash generation is £15m.

Net debt is £10.8m, which is up since Dec 2024 (£9m). That is  a little strange, given the cash generation figure we've just mentioned. The company points to “deferred consideration for GPEA, advance tax payments and H1 working capital movements”.

GPEA owned The Guild of Property Professionals and Fine & Country estate agents, and the deferred payment for that acquisition was £5m.

Current trading and outlook: in line with expectations for the full year.

Looking ahead to the remainder of 2025, the focus for H2 will be on continuing to deliver the additional income opportunities resulting from the scale of the enlarged Group…

In anticipation of the upcoming Renters Rights Bill, the rollout of the Privilege programme, to both protect income and provide growth opportunities in H2 and beyond, is well underway and provides an attractive option to landlords considering converting to the agent managed property model.

The combination of further anticipated interest rate cuts and a strong sales pipeline of £43.5m (Dec 2024: £33.4m), balanced by a softening on new instructions provides confidence in delivering planned income in H2 in Sales MSF and for the Financial Services division.

Graham’s view

As I've said before, I believe that this is one of the highest-quality companies under coverage here, and the addition of Belvoir has only increased its attractiveness, in my view, as increased scale improves its competitiveness in the market and cost efficiencies.

The “management service fees” (MSF) it earns from franchising are paid promptly and are pure profit with little direct overhead.

And the combination of sales, lettings and financial services (helped greatly by the addition of Belvoir) provide a nice mix of exposure to different elements of property market activity. It’s still going to have an element of cyclicality, of course.

At the current valuation it’s not as cheap as it used to be, but I prefer to stay GREEN on high-quality stocks unless they are obviously overpriced.

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Roland's Section

Auction Technology (LON:ATG)

Down 20% to 382p (£460m) - Acquisition - Roland - BLACK (AMBER/RED)

London, United Kingdom, 4 August 2025 - Auction Technology Group plc ("ATG", "the Company", "the Group") (LON: ATG), operator of world-leading marketplaces for curated online auctions, announces the acquisition of Chairish LLC (the "Acquisition"), a leading list price online marketplace for vintage furniture, décor and art, for a purchase price of $85 million.

Markets do not seem to be impressed with today’s acquisition announcement. However, I suspect the sell-off we’ve seen this morning may also be linked to an apparent profit warning that’s been tagged onto the end of today’s update – poor form when this is not reflected in the RNS title.

Let’s start with a look at this trading update and then review today’s acquisition.

Trading update: this is brief but and a little vague, but my conclusion is that it’s a downgrade to full-year guidance:

• Q3 revenue growth “slightly improved” versus H1, with strong growth in shipping revenue;

• Full-year EBITDA margin is now expected to be 42%-43% (previously 45% to 46%), before the impact of today’s acquisition.

I had to check May’s full-year results to find previous guidance, as this wasn’t referenced today. The company says the revised margin guidance is due to revenue mix. I have taken this as meaning that lower-margin shipping charges have provided a boost to revenue, but revenue from higher-margin product sales may not have improved.

Last year’s results highlighted a fall in the average value of items sold. My guess is that this trend may have continued, or at least failed to improve so far this year.

Estimates: I don’t have access to broker notes for ATG. However, assuming revenue estimates remain broadly in line with the Stocko consensus of $183m, I’d estimate this could cut EBITDA forecasts from c.$83m to around $78m – a c.6% cut.

Let’s move on and take a look at today’s acquisition.

Acquisition: ATG is acquiring US online art and antique marketplace Chairish LLC for $85m, funded with an unspecified mix of debt and balance sheet cash. This is expected to leave ATG with increased leverage of 2.3x EBITDA.

At first sight this acquisition looks expensive to me – Chairish generated an adjusted EBITDA loss of $0.4m last year, on revenue of $51.2m. We aren’t given any profit figures from further down the P&L.

Although the business being acquired has gross assets of $18.4m, we are not told what the net asset position might be.

Rationale: ATG says Chairish will add 4.5m monthly visitors to its existing web traffic for the Art & Antique (A&A) sector of 25.5m visitors per month. This is expected to drive cross-selling and increase the firm’s coverage of areas where it’s currently underweight.

For context, A&A is the group’s largest segment and generated just over half of total revenue last year.

Chairish will also expand ATG’s access to the list price (dealer) art and antiques market, complementing the group’s existing weighting towards the auction market.

Personally, I would probably question how many of these visitors might be visiting both companies’ websites already. Speaking as someone who was once involved in this sector, I would guess that in areas where there’s inventory overlap, many of these visitors might already be using both sites.

Expected contribution: Chairish is expected to be “adjusted EBITDA positive” in FY26 (i.e. Sept 25-Sept 26) and is expected to be accretive to adjusted EPS in FY27.

In addition, ATG says it has identified around $8m of “high confidence operational synergies” that provide a clear path to improved profitability “by FY27”. My reading of this is that the company may not make a positive contribution to EPS without these improvements.

Looking even further ahead, management expects this acquisition to generate a return on invested capital above the group’ cost of capital by FY28 – potentially three years in the future.

Roland’s view

In November last year, I took a neutral view on Auction Technology, commenting that the shares weren’t cheap but that there were some signs of improving profitability.

In May, Mark then downgraded to AMBER/RED. He highlighted the combination of higher price and declining momentum and suggested this was one High Flyer investors might want to consider avoiding.

Subsequent events suggest both of our previous calls were well timed. After performing strongly into the new year, both the share price and the StockRank have declined since Mark’s call in May. The stock is now styled as a Falling Star:

My understanding is that ATG does have quite good scale in its core markets. I don’t think it’s a terrible business.

However, today’s news increases my scepticism about this company and its management. This isn’t the first acquisition since ATG floated in 2021 – prior to today, the balance sheet carried nearly $600m in goodwill, resulting in a negative tangible asset value.

The group’s operating margin of c.20% may seem impressive. But the low returns on capital employed suggests to me that past acquisitions are not yet generating enough profit to justify the price paid for them. I suspect Chairish could extend this problem:

Personally, I think shareholders would probably be better served if management stopped making expensive acquisitions and focused on sweating the firm’s existing assets and excelling at marketing and execution.

I’m also a little uncomfortable with the increase in leverage that will result from this deal. While 2.3x EBITDA is unlikely to be problematic, in my view, it’s worth noting that finance costs consumed 40% of operating profit last year. I expect the total may be higher this year, perhaps resulting in a hit to EPS until Chairish’s profitability improves.

I’m going to leave our AMBER/RED view unchanged today. The evidence shows that companies often underperform after an initial downgrade, so I think it makes sense to be cautious for now.