Specialist auto and property lender S&U has issued a profit warning ahead of its full-year results amid an “intemperate economic climate” and “weak consumer confidence”, while an FCA probe looms over the sector.
The firm reported that pretax profit would undershoot consensus estimates by 10 to 15 per cent at around £38m for the 12 months ending 31 December.
It blamed the hit on poor consumer confidence, high-interest rates, the cost-of-living crisis and regulatory demands.
Shares in the company plunged 10 per cent in early deals following the warning.
Analysts have estimated that UK auto lenders could be hit by up to £16bn in compensation payments after the City watchdog confirmed its probe in historic commission arrangements would look at cases going back to 2007.
The Financial Conduct Authority’s (FCA) review concerns so-called discretionary commissions, which allowed brokers and dealers to raise customers’ interest rates.
Loan advances for S&U’s motor finance business, Advantage, fell seven per cent compared with the previous year, despite robust finance applications and consumer profiles.
S&U added that a tough macroeconomic backdrop had driven a decline in live monthly repayments at Advantage to 90 per cent of what was due, down from 94 per cent in the first half of the year.
It noted that cumulative repayments at its secure bridging loan arm Aspen were estimated to be “no less than 50 per cent up on last year,” although this rate of increase had slowed recently.
The group said its borrowing stood at £224m, compared with £192m the previous year, and that funding facilities of £280m provided “comfortable headroom” for growth.
However, interest payable on these funds has more than doubled to £15.1m from £7.5m.
Despite the warning, S&U said it expected a “solid rebound,” with £15m being invested into the businesses.
Chair Anthony Coombs said: “Faced with an array of challenges ranging from weak consumer confidence, cost of living pressures, funding costs and regulatory activity, 2023 has not been a vintage year for either S&U or the specialist financial services sector.
“Given the underlying strength, resilience and expertise of our group, I fully expect a resumption of S&U’s habitual and robust profit growth in the years to come.”
The group also said it planned to award investors a second interim dividend of 35p per share.
S&U is due to report its full-year results on 9 April.