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Questor: S&U offers a low valuation, good yield and sound risk management. One to hold
Questor share tip: the firm continues to be choosy about who it lends to: one of its two divisions has suffered just a single default on a loan
The share price of S&U, the motor finance and bridging loan provider, has yet to hit top gear since our first look in April but the Solihull-headquartered company continues to make good operational progress if last month’s interim results are any guide.
Worries about the economy are not helping, but we can afford to wait. The stock trades on a forecast price-to-earnings ratio of 8.5 and a dividend yield of 6pc. A major founding-family shareholding and long tradition of sound risk management also speak in favour of patience.
The non-prime part of the used car business served by the Advantage operation is holding up well (and much better than the new car market), as evidenced by an increase in customer numbers to a record high of 62,000. Better still, management is being selective when it comes to loan applications as monthly collections are rising nicely.
The property lending arm, Aspen, offers loans to those individuals and commercial borrowers who wish to buy or refurbish an asset. This division is also receiving record levels of inquiries, which is again allowing management to pick the best opportunities.
Of the 137 loans made by Aspen since it began trading two years ago, 73 have already been repaid in full and just one has seen a loss (and that was on interest rather than the principal loan).
A 6pc increase in the first interim dividend sets up S&U for an 11th straight increase in its annual dividend, which usually features two interims and then a final. This initial payment, of 34p a share, will be paid on Nov 15. The shares go ex-dividend on Oct 24.
Macroeconomic concerns may hold back the shares in the near term but they could still appeal to value and income investors alike.
Questor says: hold
Ticker: SUS
Share price at close: £20.80
Update: Pressure Technologies
It is just over a year since our speculative look at Yorkshire-based Pressure Technologies and so far we are just below break even on the specialist engineer.
This is a positive triumph relative to some of this column’s other attempts to find a successful turnaround story (see below) and last week’s contract for precision high-pressure cylinders for gas storage at EDF Energy’s British nuclear facilities, with a value of more than £3m, is a major step forward for Chris Walters, the chief executive, and his team.
The deal suggests that the decision to focus on the cylinders and precision components arms, following the disposal of the loss-making alternative energy unit earlier this year, was the correct one.
After a lengthy period of red ink the firm got back to breaking even at the half-year stage and the asset disposal and a new banking facility mean the balance sheet is under no immediate pressure.
Management has time on its side and a market value of barely £20m factors in little potential for gains, even if this is still a very high-risk play unsuitable for widows and orphans.
Questor says: hold
Ticker: PRES
Share price at close: 106.5p
Update: Ted Baker
Sometimes you find trouble when you go looking for it, and this is what has happened at Ted Baker, the fashion retailer.
We did warn in our initial analysis last month that the interims could be ugly – but never in our wildest nightmares did we imagine that they would be so bad.
- Read Questor’s rules of investment before you follow our tips
A £23m pre-tax loss, a 56pc cut to the interim dividend and a warning about a weaker second half on a year-on-year basis leave us with nowhere to hide. All we can do is say that we got this one horribly wrong, and apologise.
Having made a hash of this stock it is time to move on. Hopefully any tax losses can be put to good use to offset gains in the future.
Questor says: sell
Ticker: TED
Share price at close: 493.6p
Russ Mould is investment director at AJ Bell, the stockbroker
Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.