Shares in S&U jumped 42.5p to 340p yesterday after the Solihull doorstep credit company reported resilient full-year results under-pinned by £37?million of new bank facilities agreements with HSBC and Royal Bank of Scotland fixed until 2012.
S&U has been able to tighten up its lending criteria as banks and other mainstream lenders refuse conventional credit to customers who would previously have received it. The company has been recruiting managers from rival lender London & Scottish, which has gone out of businesses.
S&U’s profits for the year to January came in at £8.3?million after £8.6?million last time, on revenues marginally higher at £46.2?million.
An unchanged final dividend of 23p holds the year’s total at 32p, giving the shares a yield of 9.4 per cent.
The share price, which has recovered from a 12-month low of 235p is equivalent to 6.8 times the year’s earnings.
“These are a solid set of results to reassure the market,” said chairman Anthony Coombs. “We are not racing the engine to try to grow the [loan] book too quickly. The important things are stability and solidity.”
S&U has been shortening the terms of its home credit loans, Mr Coombs added. These mostly now run to 32 or 42 weeks, rather than the 52 and 68-week deals that were more prevalent in the past.
Its total home credit loan book is little changed, but it has 2,000 more customers, spreading its exposure more widely.
The company stated: “As the economy has deteriorated, management has taken steps to protect the quality of our debt by more rigorous and sophisticated underwriting, by further integration of collecting in our home credit division and by a shortening of our debt profile throughout the group.
“This means that even should our customers’ incomes be eroded by unemployment, short-time working or utility price inflation, S&U is well placed to protect its relationships with them and hence the quality of its debt and potential trading.”
Advantage Finance, the motor subsidiary, is now generating cash. It increased its profit contribution by 15 per cent to £3.01?million, on revenues ten per cent higher at £14.17?million.
In most months it accepts only 300 to 400 of the record 10,000 applications it has been receiving to limit the level of new business to last year’s so as to secure the quality of its loans. Cash collections are now outpacing sales by 14 per cent. Overall, S&U generated cash of £3.6?million from its operations last year.
Mr Coombs stressed that he is not looking for rapid expansion in the present economic climate.