We jumped the gun on this firm embroiled in the motor financing probe

Questor may have avoided a share price decline but we also missed two dividends

It is possible that we tried to be too cute in the case of specialist lender S&U when we cut and ran earlier this year as the details of the Financial Conduct Authority’s (FCA) investigation into the motor financing market became known.
We have ducked a dip in the share price, for sure, but we also missed two dividend payments which would have made up for a good chunk of the fall. 
We try not to duck and dive too much, not least so as to avoid incurring trading and other frictional costs that can compound just as easily as dividends, but S&U’s first-half results statement last week (8 Oct) suggest it could be worth going back in on this occasion.
Through its Advantage Finance arm, the Solihull-headquartered firm provides non-prime loans for cars, while the fledgling Aspen Bridging operation offers property loans for individuals and commercial borrowers who wish to purchase or refurbish an asset. 
The current backdrop is therefore not an ideal one, even as the UK eases its way out of last year’s shallow recession. An increase in loan impairments and higher interest rates took a toll on the first-half results, as profits fell and the board sanctioned a modest reduction in the first dividend payment of the fiscal year to January 2025. 
The FCA’s inquiry into discretionary commission arrangements (DCAs) in the car financing market did not help either. S&U’s Advantage Finance arm acknowledged that a tiny handful of cases, relative to the overall customer base, had attracted regulatory scrutiny. 
As a result, the operation has encountered costs, revised documentation, adopted voluntary restrictions and changed some business practices to ensure that customers continue to get the best possible outcomes.
However, the limited number of cases and speedy response may mean this cloud could be about to lift. In addition, the combination of cooler inflation, lower interest rates from the Bank of England and improved consumer confidence and economic growth could also be a boost to S&U, which continues to lay the foundations for future growth, as evidenced by how total receivables from customers stand at a new all-time high.
Loan applications rose 22pc year-on-year in the first half at Advantage, suggesting that S&U’s reputation within the market has not been besmirched and that underlying demand for its services remained healthy.
Total receivables at Advantage fell only modestly and they grew by nearly 50pc at Aspen Bridging, suggesting the company is primed to benefit from any sustained upturn in property refurbishment market. 
The company dates back to 1938 and the founding family still has a major stake, so any risks taken by the current board are likely to be considered ones where the potential returns are deemed to be sufficient compensation.
This all helps to underpin analysts’ forecasts of a healthy rebound in profits in the year to January 2026 which, should it come to pass, would end a run of three consecutive decreases in annual profit. 
A prospective price-to-earnings ratio of 10.8 times with a dividend yield of 6.6pc also suggest there may be some value to be had, after a 40pc slide in the share price from 2021’s all-time high.
Questor says: Buy
Ticker: SUS
Share price at close: £18.45
It feels more than a little trite to be writing about share prices when people in Florida are facing the damage done by a Category 5 hurricane, but the stock market valuation of non-life insurer Lancashire (LRE) is gyrating, and we therefore have capital at risk.
As the manager of Lloyd’s of London syndicate 2010 Lancashire has insurance, and reinsurance, exposure to property and marine (and thus catastrophe) risk in the USA. Profitability took a big hit in 2020 and 2021, thanks to Winter Storm Uri and Hurricane Ida in America and floods in Europe, causing a stream of special dividends to dry up and the share price stumbled.
Hurricanes Beryl, Helene and now Milton could mean 2024 is a tough year, too. But Lancashire’s history since its initial public offering in 2005 shows its underwriting and risk management prowess and the company has a history of using difficult times to its advantage. 
The company was founded in the wake of the carnage wrought in America by Hurricane Katrina in 2005 and raised cash in 2020, as industry-wide payouts reduced available capacity for underwriting risk and ultimately drove up premiums and prices, to the benefit of the better-financed participants who came through and had capital to deploy. 
We may find out more at the scheduled trading update on 6 November.
Questor says: Hold
Ticker: LRE
Share price at close: 663p
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