3. S&U Plc
A Cautious Lender Facing Motor Finance Turmoil
S&U Plc is a British company that makes money by lending to people and businesses needing financial support, often when mainstream banks won’t. It operates in the financial services industry, focusing on specialist lending – primarily car loans and property bridging loans. S&U earns its keep by charging interest on these loans, targeting niche markets where it can manage risk and still turn a profit.
The company’s biggest earner is Advantage Finance, which provides motor finance for used cars, often to people with less-than-perfect credit. Advantage lends up to £15,000 on hire purchase agreements, collecting monthly repayments with interest – higher rates reflect the risk of lending to non-prime borrowers. In 2024, this arm served over 60,000 customers and made up about 80% of S&U’s £115 million revenue. The other division, Aspen Bridging, offers short-term “bridging loans” for property deals, helping developers or investors buy before securing longer-term funding. These loans also carry high interest rates due to their risk, but quick turnarounds let S&U frequently recycle its capital.
However, S&U is grappling with major challenges in the UK motor finance sector. A 2024 Court of Appeal ruling found it unlawful for car dealers to receive commissions from lenders without fully informing customers, imposing a retrospective duty of care on lenders like S&U. This triggered chaotic market conditions, with some lenders halting operations altogether. S&U’s Advantage arm saw net receivables drop 10% to £295 million by December 2024, as the ruling – now under appeal to the Supreme Court in 2025 – rattled the market. The Financial Conduct Authority (FCA) is also investigating historical commission practices, with potential compensation costs for lenders possibly exceeding £2 billion in 2025. This uncertainty, combined with a tough Budget hitting consumer confidence, has weighed heavily on S&U’s trading conditions.
Based in Solihull since 1938, S&U takes a cautious approach, using tech to assess borrowers and focusing on responsible lending. While its property arm is growing, the motor finance woes – regulatory scrutiny, lower collections, and economic pressures – are testing its resilience in a competitive sector.
S&U is a decent enough business operating in a commoditised sector. The key to this type of financing business is a management team that understands longevity comes from the liabilities side of the balance sheet rather than chasing speculative assets (aka dodgy loans). Fortunately, S&U seems to have that type of management. It is essentially a family business, with three Coombs family members on the board and the family still holding a large stake in the company. That doesn’t guarantee excellent management, but it usually means they are cautious and well-aligned with other shareholders.
Because of the ongoing issues in motor finance, the shares look cheap (perhaps justifiably) at time of writing. Should the problems prove less damaging than feared, there could be money to be made with an investment here. However, as a plodding business selling a commoditised service, there’s little point in further exploration by Wonder Stocks.
