S&U: Family-Controlled UK Subprime Auto Lender with Underappreciated Intrinsic Value

Matthias Teig of Rothorn Partners presented his in-depth investment thesis on S&U (London: SUS) at Best Ideas 2018.

S&U 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.

Car finance, especially to non-prime clients seems to be out of favor at the moment. An objective analysis, however, shows that Advantage takes only limited residual value risk and its business has been relatively resilient during the financial crisis and the 2009 recession.

With a recent market cap of GBP 280 million and a free float of ~26%, S&U shares are not very liquid. The company is below the radar of most institutions and the sell side. A recent PE of 12x and a dividend yield of 4% seem attractive given the strong market position and growth potential.

H1 revenues were up 33% and EPS increased 21%. The balance sheet is healthy, with gearing at 56% at the end of July 2017. ROE of 16% in H1 can be improved as the business continues to grow and the balance sheet is levered up a bit more.

About the instructor:

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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