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Why I’d buy these two rising financial firms

S&U (LSE: SUS) flies under the radar of most investors, but that does not mean its returns are poor. In fact, shares in financial services company significantly outperformed all four of the UK’s large high street banks over the past five years, and it seems as if the group is only just getting started.

Only just getting started 

Since mid-2012 shares in S&U have risen by 142% excluding dividends. Over this period the company has returned 330p to shareholders via dividends, giving a total return of 179%. Since 2012, the company’s earnings per share have more than doubled from 92.6p to 200p as the group has benefitted from growth in the non-traditional finance market. 

S&U is focused on the specialist motor finance market, a market that has seen explosive growth in recent years. It has been active in this market since its founding in 1938, and while there are concerns about the level of lending to car owners since the financial crisis, with such a rich history behind it, it is likely S&U is prepared for all eventualities.

And after doubling earnings in the past five years, City analysts are expecting the group’s growth to continue in the years ahead. Analysts have pencilled-in earnings per share growth of 17% for the fiscal year ending 31 Jan 2018, followed by growth of 15% for the next year, taking earnings per share to 231p. Based on this estimate, shares in the company are currently trading at a 2019 P/E of 8.7. 

Analysts also believe management will increase the company’s dividend payout by 27% over the next two years, which should give a dividend yield of 5.8% by 2019. Based on these metrics, S&U looks to be an incredibly attractive income and growth play.

Cheap growth

Non-Standard Finance (LSE: NSF) does not have the same extensive history as S&U, but City analysts are still expecting explosive growth in the years ahead for the company. 

After reporting losses for the past two years, for 2017 the company is projected to report a pre-tax profit of £22.8m and earnings per share of 5.3p. Next year pre-tax profit is expected to leap higher to £31m on revenue of £132m, which should translate into earnings per share of 7.9p, up 48% year-on-year. 

Considering this explosive growth rate, it’s no surprise shares in the company have risen by 32% year-to-date, and there could be further gains ahead. Indeed, even after recent gains, shares in Non-Standard Finance only trade at a forward P/E of 13.6, falling to 9.2 for 2018, a valuation which looks remarkably cheap considering the company’s explosive earnings growth. 

Further, city analysts have pencilled-in a dividend of 2.8p per share for this year and 3.9p for 2018, giving a forward dividend yield of 5.5% and plenty of room for further payout growth with a dividend cover of two. Once again, another non-traditional lender that looks to be a great income and growth play.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.