Shares in the FTSE All-Share specialist finance group S&U (LSE:SUS) have had a stellar 12 months, climbing nearly 50% from 1,595p on March 27th 2020 to 2,200p at the time of writing.
As the owner of residential and commercial bridging finance lender Aspen Bridging, the FTSE firm has benefited from robust demand in the UK housing market during the pandemic.
According to Bridging Trends, £455 million of loan transactions – usually short-term lending helping people buy a new home before selling their old one – were completed in the UK in 2020. That was down 38% on 2019 as the sector was battered by the closure of housebuilding sites in the first Covid lockdown.
However, a recovery driven by people eager to take advantage of the Government’s stamp duty holiday, and high street banks taking longer to process mortgages, helped the bridging sector hit a total of £250 million in loans in the third and fourth quarters combined.
The housing market rally could be halted when the Stamp Duty holiday ends on June 31st, and if the closure of the furlough scheme in September leads to higher unemployment.
But until then, at least, I expect demand to remain high.
I could use this opportunity to snap up FTSE-listed housebuilding stocks, but I see greater growth in the bridging market and subsequently S&U’s shares.
Why I’m bullish
S&U this week posted a profit before tax of £18.1million for the year to January 31st 2021, down from £35.1million in 2020 as it paid the price of Covid.
However, Aspen Bridging is one of the leading companies in the bridging sector and could benefit from the rush of people looking to complete house moves before the Stamp Duty holiday ends.
High street banks could be faced with a mountain of mortgage applications and if there are delays then customers will turn to bridging finance to ensure their purchase gets over the line.
The FTSE All-Share S&U should also benefit from a tougher UK economic backdrop in the months ahead. The high street banks may become more cautious in their lending and frustrated purchasers or sellers could turn to bridging as a solution.
I also see more bridging finance demand from developers keen to turn abandoned commercial units such as pubs into residential homes and homeowners seeking short term loans to refurbish their properties by adding office space.
The FTSE All-Share stock could also see more demand for its Advantage Finance motor company as drivers hunt for cheaper used cars.
S&U also benefits from being a family-owned company, which I think gives it an advantage over its peers when cementing relationships with brokers and customers.
Risks to consider
There are a couple of issues, however, that might stop me buying S&U’s shares.
A particularly severe economic downturn could stall the housing market rally and flatten demand for bridging finance. I also fear that short-term lending still carries a negative public reputation because of high fees and interest rates.
However, overall, I expect a strong share-price climb heading into the Stamp Duty holiday for this FTSE All-Share stock and in the likely tough economic months ahead.
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David Craik has no position in any of the shares mentioned. The Motley Fool UK has recommended S & U. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.