Richard Simmons presented his in-depth investment thesis on S & U (London: SUS) at European Investing Summit 2017.
S & U is a used car finance company. It has a long history and a long runway. Used car finance is currently in bad taste because of the belief that there is a consumer debt bubble, partly concentrated in the auto market. S & U is UK-only and does not write personal contract purchase (PCP) loans, so it is somewhat isolated from the main issues. Through cautious underwriting it manages an ROA of 10+%, compared to a very good bank target of 2%. Leverage, as measured by total assets to total equity, is below one-and-a-half times, compared to a very good bank ratio of ten times; but this is enough to push ROE to 15%. S & U trades below ten times forward earnings. S & U has an outside value because even if the share price doubled, bringing the forward P/E to less than 20x, the ongoing 15% (and growing) return on NAV would still be attractive.
Note: Richard discussed S & U in a session that also included Daejan Holdings.
About the instructor:
Richard Simmons joined Credo as an Investment Manager in 2001. He discretionarily invests managed accounts and is the Investment Adviser of a Cayman fund, Derby Street Investments. Before becoming an investment manager he was a banker for eleven years. He was educated at Oxford and Cass Business School and is the author of “Buffett Step by Step”.
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