S&U plc Reports Profit Decline Amid Regulatory Challenges in Motor Finance
Why we think this is bad
The financial results paint a challenging picture for S&U plc. Profit before tax has taken a significant hit, dropping from £33.6m to £24.0m, while earnings per share have declined from 209.2p to 147.4p. This substantial decrease in profitability is a major concern for investors. The motor finance division, Advantage, has faced particular difficulties due to regulatory and legal challenges, which have impacted its lending and collections performance. While revenue has remained stable, the lack of growth coupled with declining profits suggests underlying issues. The increase in impairment charges from £24.2m to £35.6m further indicates pressure on the company's financial health. On a positive note, the property bridging finance business, Aspen, has shown strong performance, which provides some balance. However, the ongoing uncertainty surrounding the Supreme Court decision on commission disclosure poses a significant risk. The company's acknowledgment of headwinds, challenging market conditions, and economic uncertainty in their outlook adds to the overall negative sentiment. Despite management's optimism about a potential rebound, the current financial metrics and external challenges suggest a cautious approach is warranted.
Key Points
- Profit before tax decreased to £24.0m from £33.6m
- Earnings per share fell to 147.4p from 209.2p
- Revenue stable at £115.6m
- Impairment charge increased to £35.6m from £24.2m
- Net borrowings reduced to £192.3m from £224.4m
- Gearing improved to 80.8% from 95.8%
- Aspen (property bridging finance) reported record profit before tax of £7.2m
- Advantage (motor finance) faced regulatory and legal challenges
- Final dividend proposed at 40p per ordinary share, down from 50p
- Uncertainty remains regarding Supreme Court decision on commission disclosure
Summary
S&U plc's preliminary results for the year ended 31 January 2025 reveal a challenging period for the company. Profit before tax decreased to £24.0m from £33.6m in the previous year, with earnings per share falling to 147.4p from 209.2p. The motor finance division, Advantage, faced significant headwinds due to regulatory and legal challenges, impacting its lending and collections performance. However, the property bridging finance business, Aspen, delivered a strong performance with record profit before tax of £7.2m, up from £4.8m. The company's revenue remained stable at £115.6m, but the impairment charge increased to £35.6m from £24.2m. Despite these challenges, S&U has reduced its net borrowings to £192.3m and improved its gearing to 80.8%. The company faces uncertainty regarding the impending Supreme Court decision on commission disclosure but remains optimistic about a potential rebound in Advantage's performance. The final dividend proposed is 40p per ordinary share, down from 50p in the previous year.