This article is authored by MOI Global instructor Matthias Teig, co-founder and partner at Rothorn Partners, based in Geneva, Switzerland. Matthias is an instructor at Best Ideas 2018, the fully online conference featuring more than one hundred expert instructors from the MOI Global membership community.
S&U plc is a family controlled British specialty finance company. After the sale of its home loan business in 2015, its main source of revenues is Advantage, a fast-growing non-prime motor finance business. Aspen Bridging is still in a test phase, but this real estate bridge finance business could potentially provide diversification and offer additional growth in the future. With a market cap of ca GBP 280mn and a free float of ca 26%, S&U shares are not very liquid and therefore the company is below the radar of most institutions and the sell side. A recent PE of ca 12 and a dividend yield of ca 4% seem attractive given its successful track record and growth potential. H1 revenues were up 33% and EpS increased 21%. The balance sheet is healthy with gearing at the end of July 17 at 56%. RoE of 16% in H1 can be improved as the business continues to grow and the balance sheet is levered up a bit more.
S&U was founded in 1938 by Clifford Coombs and is controlled by the Coombs family in the third generation with the twins Anthony and Graham Coombs as Chairman and Deputy Chairman. S&U is short for Sports and Utilities and in its early days, the company sold household goods (pots and pans, towels, blankets, …) door to door and collected payments on a weekly basis. The original consumer credit business was transformed into a home loan business in the 70ies, which was sold to Non-Standard Finance plc in 2015. Since 1999, S&U has built a non-prime motor finance business called Advantage. Non-prime is a type of loan, where the customer is not perceived to be credit worthy by a traditional bank. Usually, there were issues in the client’s credit history, but clients at least have a regular income.
On average, a typical Advantage car finance loan amounts to GBP 6100 with 4 years maturity at a relatively high flat interest rate of 17.9% pa. Loans are structured as hire purchase financing, which is paid off in monthly instalments secured against a car. Hire Purchase is different from PCP (Personal Contract Purchase), which is generally used for new cars. With PCP, payments cover only the depreciation of the car and the PCP provider keeps the residual value risk of the car. With hire purchase, the loan covers the full value of the car and ownership is transferred to the client, when the last payment is made. PCP is a bit like leasing and very much in the news recently because of concerns about its increasing use and residual value risks especially for diesel cars. Hire purchase is different, because the financing provider carries only the residual value in the case of default or early termination. Also, used hand cars have already gone through the steep part of the depreciation curve.
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This document is for informational purposes only and should not be construed as investment advice. While the author has tried to present facts he believes to be accurate, the author makes no representation as to the accuracy or completeness of any information contained in this note. The author and related entities hold a long position in the described security at the time of writing, but he might change his opinion and position without notifying readers. Please do your own research and with all investments, caveat emptor.
About The Author: Matthias Teig
Matthias Teig is co-founder and partner at Rothorn Partners. With 15 years of experience in asset management, investment and private banking he has a broad knowledge of capital markets and investments. After starting his professional career with Allianz Global Investors in 2001, he moved into a structured products sales role with Barclays Capital in 2005. Later, he had a position in the Key Clients team of Barclays Wealth, where his role was to originate investment banking business from the largest and most sophisticated private banking clients. The breadth of his work experience covers equities, fixed income, commodities, derivatives, private equity, hedge funds, real estate, risk management and financing. His professional career took him from Munich to London and Geneva with secondments in New York and San Diego. In the summer of 2014, Matthias founded Rothorn Partners with Emanuel von Spee and since January 2015, they are advising Festina Lente Opportunities Strategy. Already during his teenage years, he started an interest in the stock market and by investing for more than 20 years, through several bull and bear markets, he has refined his personal investment approach, which is bottom up and always with a focus on value and margin of safety. His passion is to hunt for opportunities with an asymmetric return profile. When analyzing complex situations, he draws on his experience and his network, but is not afraid to think independently and form his own opinion. He reads widely and is always interested to learn. With his international work experience and a year in China during university, Matthias has developed respect and understanding for foreign cultures. He speaks several languages, has a Diploma in Economics, Languages and Cultural Area Studies from Passau University and is a CFA charterholder. In his freetime, Matthias enjoys skiing, rock climbing and mountaineering.
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