S&U — Resilient amid softer sentiment and economy

S&U (LSE: SUS)

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GBP12.65

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GBP154m

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Research: Financials

S&U — Resilient amid softer sentiment and economy

S&U’s update indicates trading has remained in line with management expectations but there are some slightly more cautious elements compared with our forecast assumptions at the time of the H120 results. As a result, we have modestly tempered our estimates for FY20/21. Even so, the shares trade prospective earnings multiples of below 9x while the yield is over 5%.

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Financials

S&U

Resilient amid softer sentiment and economy

Trading update

Financial services

11 December 2019

Price

2,110.00p

Market cap

£252m

Group debt (£m) December 2019

132

Shares in issue

12.1m

Free float

26%

Code

SUS

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.4

(1.9)

(0.5)

Rel (local)

2.7

(2.2)

(8.8)

52-week high/low

2,440.00p

1,767.50p

Business description

S&U’s Advantage motor finance business lends on a simple hire-purchase basis to lower and middle income groups that may have impaired credit records that restrict their access to mainstream products. It has over 63,000 customers. The Aspen property bridging business has moved beyond the pilot stage and is expanding its loan book (£28m December 2019).

Next events

FY20 and Q420 trading update

11 February 2020

Analysts

Andrew Mitchell

+44 (0)20 3681 2500

Martyn King

+44 (0)20 3077 5745

S&U is a research client of Edison Investment Research Limited

S&U’s update indicates trading has remained in line with management expectations but there are some slightly more cautious elements compared with our forecast assumptions at the time of the H120 results. As a result, we have modestly tempered our estimates for FY20/21. Even so, the shares trade on prospective earnings multiples of below 9x while the yield is over 5%.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/18

79.8

30.2

202.4

105.0

10.4

5.0

01/19

89.2

34.6

232.0

118.0

9.1

5.6

01/20e

97.5

35.5

239.3

124.0

8.8

5.9

01/21e

106.0

39.0

261.7

128.0

8.1

6.1

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Trading update July to December

Motor finance receivables Advantage Finance have grown by 2% since the end of H120 (July), still positive but at a slower pace than in the first half (+5.8%). Customer numbers are also up 2% to a record 63,500. The risk-adjusted yield (revenue yield less impairment provision) has improved to 25.2% versus the July level of 24.9% (a rolling 12-month figure as reported by S&U) but this is a smaller improvement than anticipated by the company. This arises from higher than expected impairments from loans made in the period prior to a tightening of credit criteria and lower used car auction prices for recovered vehicles (see BCA auction data overleaf). S&U also notes that in addition to the continuous process of refining the underwriting system, integration of systems with broker partners has improved and the Advantage website has seen significant enhancements. At Aspen the loan book has increased from £24.7m at end-July to £28m. The group cites the continuing impact of political uncertainty in the property market as slowing borrower exits (in line with H1 commentary).

Outlook

A number of indicators have shown some softening including used car prices (as noted), used car transactions, consumer confidence and the incidence of redundancies but the changes are small or very small and the value/volume of used car finance is up for 9M19. Advantage has a track record of managing through market cycles so although it is not immune to economic trends, we would expect it to be resilient to adverse developments. Positively, if the general election were to provide greater certainty, this could be a positive influence on confidence and the environment for both Advantage and Aspen.

Valuation

Our EPS estimates are reduced by nearly 4% for FY20 and FY21 reflecting slightly more conservative risk-adjusted yield and receivables growth assumptions for Advantage. S&U still trades on lower prospective P/Es than the peer group and offers a higher yield than our peer group average.

Market background charts

We have updated a small selection of industry and economic data to provide context for the S&U update and the modest change in our estimates.

Our first two charts track trends in BCA auction price data, which show a softening in prices recently following sustained increases over the period shown. The dealer part-exchange category is most comparable with the vehicles that Advantage finances and the latest reading for October was £5,180, a year-on-year reduction of 2.9%. There is seasonality in auction pricing and as Exhibit 2 shows the BCA prices have been within a relatively narrow band recently. To the extent that these are representative of Advantage’s experience, we would not anticipate a substantial impact from lower prices on recovered vehicles.

Exhibit 1: BCA auction prices % change y-o-y

Exhibit 2: Auction prices, dealer part-exchange (£)

Source: BCA, Edison Investment Research

Source: BCA, Edison Investment Research

Exhibit 1: BCA auction prices % change y-o-y

Source: BCA, Edison Investment Research

Exhibit 2: Auction prices, dealer part-exchange (£)

Source: BCA, Edison Investment Research

Exhibit 4 shows changes in used-car transaction volumes and these were down 0.8% in 9M19 compared with the same period last year. New car registrations are not directly relevant for Advantage, but are shown to provide context and to demonstrate the greater volatility they have tended to display; they were down 3% for the same period. The value of used-car finance through dealerships (Exhibit 5) was up 5% for 9M19 while the volume (not shown) was 2% ahead of 9M18.

Exhibit 3: UK car market trends (volume)

Exhibit 4: Car finance through dealerships (value)

Source: SMMT

Source: Finance and Leasing Association

Exhibit 3: UK car market trends (volume)

Source: SMMT

Exhibit 4: Car finance through dealerships (value)

Source: Finance and Leasing Association

Indicators for the potential behaviour of the Advantage customer base are UK consumer confidence and redundancy and unemployment measures. While the consumer confidence reading has moved significantly lower since its recent high in 2015, the latest figure is unchanged from the beginning of 2019 so arguably there has been a stabilisation in sentiment. The level of unemployment (regarded as a lagging indicator) has been stable in 2019 at around 3.8% while the rate of redundancies (per 1,000) has shown an increase during the year, starting at 3.3 and rising to 4.3 by September. There would be cause for concern if this trend were to accelerate as this could start to have an impact on impairment levels. However, as Exhibit 7 shows, the incidence of redundancies still remains subdued compared with recent years and much lower than seen during the financial crisis.

Exhibit 5: GFK UK consumer confidence indicator

Exhibit 6: UK redundancies and unemployment

Source: Bloomberg (last value November 2019)

Source: Bloomberg (last value September 2019)

Exhibit 5: GFK UK consumer confidence indicator

Source: Bloomberg (last value November 2019)

Exhibit 6: UK redundancies and unemployment

Source: Bloomberg (last value September 2019)

Changes in estimates

The changes we have made to our estimates are limited. As noted earlier, we have assumed a slightly more conservative risk-adjusted yield and lower receivables growth for Advantage and a lower rate of loan book growth for Aspen Bridging. Other assumptions are unchanged. As a result our EPS estimates are reduced by nearly 4% for both FY20 and FY21 (see below and the financial summary on page 4).

Exhibit 7: Changes to estimates

Year-end
January

Revenue (£m)

PBT (£m)

EPS (p)

DPS (p)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

FY20e

98.0

97.5

-0.5

36.9

35.5

-3.8

248.7

239.3

-3.8

124.0

124.0

0.0

FY21e

108.2

106.0

-2.1

40.5

39.0

-3.7

271.7

261.7

-3.7

128.0

128.0

0.0

Source: Edison Investment Research

Valuation

An updated version of our peer comparison table is shown below. This includes companies with an exposure to motor finance and non-standard lending. S&U trades on below average multiples and offers an above average yield. Its historical ROE is above average and, on our revised numbers, will remain close to 17% for both prospective years; meanwhile the price to book multiple is only slightly above the average value.

Exhibit 8: Peer comparison

Price
(p)

Market cap
(£m)

P/E 2019
(x)

P/E 2020
(x)

Yield
(%)

ROE
(%)

P/BV
(x)

S&U

2,110

255

8.8

8.1

5.6

17.6

1.5

Close Brothers

1,507

2,278

11.2

11.0

4.4

14.9

1.6

PCF Group

35

86

11.5

9.0

1.2

10.8

1.5

Provident Financial

421

1,065

9.0

7.9

2.4

16.1

1.5

Secure Trust Bank

1,420

262

8.1

6.8

5.8

12.7

1.1

Peer average

10.0

8.7

3.4

13.6

1.4

Source: Refinitiv, Edison Investment Research. Note: P/Es adjusted to calendar years. Priced 11 November 2019.

Exhibit 9: Financial summary

£'000s

2016

2017

2018

2019

2020e

2021e

Year end 31 January

PROFIT & LOSS

Revenue

 

 

45,182

60,521

79,781

89,215

97,535

105,993

Impairments

(7,611)

(12,194)

(19,596)

(23,186)

(24,604)

(25,859)

Other cost of sales

(8,980)

(12,871)

(17,284)

(15,751)

(19,725)

(21,199)

Administration expenses

(7,131)

(8,332)

(9,629)

(10,763)

(12,266)

(13,461)

EBITDA

 

 

21,460

27,124

33,272

39,515

40,940

45,474

Depreciation

 

 

(209)

(253)

(294)

(414)

(475)

(555)

Op. profit (incl. share-based payouts pre-except.)

 

 

21,251

26,871

32,978

39,101

40,465

44,919

Exceptionals

0

0

0

0

0

0

Non recurring items

0

0

0

0

0

0

Investment revenues / finance expense

(1,782)

(1,668)

(2,818)

(4,541)

(4,962)

(5,911)

Profit before tax (FRS 3)

 

 

19,469

25,203

30,160

34,560

35,503

39,008

Profit before tax (norm)

 

 

19,469

25,203

30,160

34,560

35,503

39,008

Tax

(3,583)

(4,861)

(5,746)

(6,571)

(6,610)

(7,411)

Discontinued business after tax

53,299

Profit after tax (FRS 3)

 

 

69,185

20,342

24,414

27,989

28,893

31,596

Profit after tax (norm)

 

 

15,886

20,342

24,414

27,989

28,893

31,596

Average Number of Shares Outstanding (m)

12.0

12.0

12.1

12.1

12.1

12.1

Diluted EPS (p)

 

 

576.5

169.1

202.4

232.0

239.3

261.7

EPS - normalised (p)

 

 

132.4

169.1

202.4

232.0

239.3

261.7

Dividend per share (p)

201.0

91.0

105.0

118.0

124.0

128.0

EBITDA margin (%)

47.5%

44.8%

41.7%

44.3%

42.0%

42.9%

Operating margin (before GW and except.) (%)

47.0%

44.4%

41.3%

43.8%

41.5%

42.4%

Return on equity

15.2%

15.2%

16.7%

17.6%

16.8%

16.8%

BALANCE SHEET

Non-current assets

 

 

103,653

138,004

181,015

185,383

211,443

231,955

Current assets

 

 

61,903

57,763

84,178

95,430

108,995

121,301

Total assets

 

 

165,556

195,767

265,193

280,813

320,438

353,256

Current liabilities

 

 

(6,850)

(17,850)

(7,927)

(6,722)

(7,784)

(8,064)

Non current liabilities inc pref

(30,450)

(38,450)

(104,450)

(108,724)

(132,801)

(148,701)

Net assets

 

 

128,256

139,467

152,816

165,367

179,853

196,491

NAV per share (p)

1,084

1,177

1,276

1,375

1,496

1,634

CASH FLOW

Operating cash flow

 

 

(16,017)

(27,431)

(43,418)

10,530

(4,334)

2,276

Net cash from investing activities

80,716

(308)

(1,040)

(785)

(625)

(860)

Dividends paid

(23,090)

(9,548)

(11,377)

(13,080)

(14,453)

(15,088)

Other financing (excluding change in borrowing)

55

21

12

14

7

0

Net cash flow

 

 

41,664

(37,266)

(55,823)

(3,321)

(19,405)

(13,672)

Opening net (debt)/cash

 

 

(53,565)

(11,901)

(49,167)

(104,990)

(108,311)

(127,716)

Closing net (debt)/cash

 

 

(11,901)

(49,167)

(104,990)

(108,311)

(127,716)

(141,389)

Source: S&U, Edison Investment Research, Note: FY16 dividend per share includes exceptional payment of 125p.


General disclaimer and copyright

This report has been commissioned by S&U and prepared and issued by Edison, in consideration of a fee payable by S&U. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by S&U and prepared and issued by Edison, in consideration of a fee payable by S&U. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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ADMIE Holding — Yield with growth

ADMIE Holding reported 9M19 results, with net income up 12% y-o-y, and said that IPTO’s 2019 development capex plan is being implemented in a timely manner. We believe the stock continues to trade at an excessive discount to peers and to the implied regulated asset base (RAB) value. Such a discount would only be justified if allowed regulatory returns were significantly below the actual cost of capital, which we believe is not the case. Our valuation of ADMIE Holding is broadly unchanged at €2.89/share and is roughly in line with the RAB value implied by IPTO.

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