Credit provider S&U has said it plans to invest £34m in Advantage Finance, its subprime automotive finance company, following a conditional agreement to sell its home credit business, Loansathome4u, to Non-Standard Finance for £82.5m.
Although Loansathome4u results were deemed as consistent, it had produced increasingly smaller proportions of group earnings due to its limited growth, according to S&U.
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For the year ending 31 January 2015, Loansathome4u made up approximately 36.2% of group profits before tax. It noted limited future potential for growth.
In contrast, S&U reported that Advantage had seen revenue grow at a compound annual growth rate of 26.6% for the three financial years between 31 January 2013 and 2015.
Over this period S&U has invested over £40m in developing Advantage Finance and its directors believe the £34m earmarked investment will fulfil the budgetary requirements for the next 18 months.
S&U said it expected current levels of debt quality and financial repayments to persist, and growth to continue.
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By GlobalDataS&U said it also planned to invest £13m of the acquisition money to develop a nascent SME vehicle lending business. The group said Advantage already provided some commercial vehicle finance to self-employed customers, and that it now expected to develop this into broader small scale business lending.
There will also be a ‘significant’ return of capital to shareholders.
Anthony Coombs, S&U chairman said the recent unsolicited approach from Non-Standard Finance plc for our home credit business led the board to reconsider the group’s future strategy
Coombs said: "The board believes that there are significant benefits from the sale of Loansathome4u for realising fair value for our shareholders; but also significant opportunities to further accelerate the expansion of Advantage and develop its nascent small business vehicle lending products, as well as other higher growth areas of specialist finance."
"It is our intention to make a significant return of capital once we have concluded our assessment of reinvestment options and following discussions with the company’s shareholders."
