Warren Buffett once asserted that “the less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our affairs”.
The Sage of Omaha said that in the context of investors and investments but it is also a relief to see such solid principles applied in the boardroom and, as far as this column can tell, S&U, the motor finance specialist and lender, offers a good example of such a common-sense approach.
The firm provides “non-prime” loans for cars, while the fledgling Aspen Bridging operation offers property loans for individuals and commercial borrowers who wish to buy or refurbish an asset.
In the current economic climate you would be tempted to think this is a potentially tricky business right now – and you would be right. September’s interim results showed a £13.8m increase in loan loss provisions, a two-thirds reduction in pre-tax profit and a 33pc cut in the dividend.
Yet the company remained in the black, still paid a decent dividend despite the cut and continued to manage risk by tightening underwriting standards, reducing its receivables and cutting borrowings.
Such attention to detail is perhaps what you would expect of a company whose history dates back to 1938 and in which the founding family still has a major shareholding, but what this means is that S&U will be well placed to benefit as and when life begins to return to something akin to normal and economic activity starts to pick up.
A trading statement earlier this month offered more than enough encouragement to those shareholders who have patiently held on since this column’s first look at the stock in April last year, during which time the share price has risen by around 10pc and the company has paid 193p a share in dividends.
Collection rates improved in the third quarter to 87.5pc from 74.1pc in the second at the motor finance operation, Advantage, while the number of customers on a payment holiday fell and careful management of the loan book resulted in a drop in customer numbers of less than 1pc.
Business levels picked up at both Aspen and Advantage and strong cash generation at the latter helped to trim group-wide borrowings by £5m to £103m, enough for a lowly net-debt-to-equity ratio of 58pc.
This is not to say business is easy or going to get easier in a hurry and much depends on the virus and the efficacy of policymakers’ response. But S&U is financially sound and well run and the stock still offers a forecast yield of more than 4pc if consensus analysts’ expectations are anything to go by.
Patience is a virtue and it should gain its reward with S&U over time.
Questor says: hold
Share price at close: £20
Update: Yellow Cake
At $30 a pound the price of uranium may stand more than 10pc below the highs of the spring and summer but the suspension of mining by one producer, Cameco, at its Cigar Lake mine in Canada over Covid-19 concerns may help to underpin the commodity in the near term. Meanwhile Boris Johnson’s decision to enter talks about a new nuclear plant at Sizewell hints at the long-term potential for demand.
But the recent news does bode well for Yellow Cake, whose business is storing uranium oxide in specialist facilities in Canada and France. Its focus on storage means the firm provides exposure to uranium’s long-term potential without the risks associated with mining it.
Global uranium supply remains below demand and stockpiles are diminishing steadily, trends that the Cameco shutdown may only accentuate, to the benefit of prices.
Yellow Cake’s interim report earlier this month put a book, or net asset, value on its 9.3m pounds of uranium of 256p a share. At a share price of 244p this makes the discount to book value modest but there is still long-term scope for the shares to rise.
Questor says: hold
Share price at close: 244p
Russ Mould is investment director at AJ Bell, the stockbroker
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