Yahoo Finance Questor: these shares may be cheaper than they look – and they are hardly expensive anyway
Lower loan impairments as the pandemic’s impact starts to ease, prudent lending policies and a new online portal all mean that specialist finance provider S&U is making the most of an upturn in demand for both cars and property refurbishments.
We can already claim a capital gain of 60pc, on paper at least, since our tip in April 2019, and as the company lays the foundations for future growth there could be more to come.
Last week’s interim results showed an increase in profits, the dividend and – perhaps most importantly with the future in mind – receivables, the sums owed by customers. Even as group-wide payment collections rose sharply, total receivables across the two arms of the company rose by 9pc year-on-year to £306m, a new high for the firm.
In addition, the company can borrow up to £180m from its own lenders and, with just £115m of those facilities deployed so far, S&U has a further £65m available for growth.
Any investor who fears that the wheels are about to fall off the economy may be wary of getting involved, as any upset could compromise customers’ ability to service and repay their loans. Even so, S&U manages risk in a disciplined manner, as you would expect of a company that dates back to 1938 and can claim three generations of management by the founding family.
In addition, S&U’S first-half pre‑tax profits of £19.9m suggest that analysts’ forecasts for 2022 and 2023 may be conservative. As a result, the shares may be cheaper than they look on an earnings basis, and they are hardly expensive anyway. Consensus estimates currently pencil in pre-tax profits of £28m for the year to January 2022 and £33.3m for 2023 and even those figures put the shares on about 15 times forecast earnings for the former year and 12.7 times for the latter.
S&U initially caught this column’s eye as much for its yield as for its potential for share price gains and it is therefore pleasing to note that we have already banked payments with an aggregate value of 220p a share. This year’s first interim payment of 33p a share, due on Nov 19, will top that up nicely and investors can look forward to a second interim and final payment for this year, too, all things being equal, as the firm has tended to make three payments a year.
Consensus forecasts of a total dividend for the year to January 2022 of 98p a share look a touch conservative considering the initial 33p distribution. A forecast yield of 3.4pc is not as plump as when we first looked at the stock but that is only to be expected after the share price advance and the dividend is covered twice by forecast earnings. Nor should it be forgotten that dividends peaked at 120p a share before the pandemic and recession of 2020.
The valuation and yield mean S&U may still appeal to investors who seek capital appreciation or income alike.
Questor says: hold
Ticker: SUS
Share price at close: £28.90
Update: AG Barr
Rather frustratingly, shares in the soft drinks maker AG Barr are refusing to sparkle, even if last week’s first-half figures showed a marked improvement in sales and profits, as well as a return to the dividend list. We will gratefully bank the 12p a share in ordinary and special dividends due on Oct 29 and it should be worth holding on after that.
Shortages of carbon dioxide and haulage capacity, and input cost pressure, are all legitimate concerns, but it may not pay to overdo the gloom. Management still expects operating margins to exceed last year’s levels and the company’s carefully nurtured brands, such as Irn-Bru, Funkin and Rubicon, could confer some degree of pricing power and therefore some protection from cost increases.
They helped the Scottish firm through the last carbon dioxide shortage three years ago, as well as the launch of the sugar tax in the same year, after all. A forecast price‑to‑earnings ratio just north of 20 may not look unduly cheap but AG Barr’s history of double‑digit operating margins and returns on capital speaks in favour of patience. It’s worth holding on, despite the flat response to the interims.
Questor says: hold
Ticker: BAG
Share price at close: 530p
Russ Mould is investment director at AJ Bell, the stockbroker
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