Company Overview: Super Retail Group Limited (ASX: SUL) is involved in the retail industry, which changed its name to Super Retail Group Limited in 2010. The Company's principal activities include retailing of auto parts and accessories, retailing of boating, tools and equipment, camping, fishing equipment and apparel, outdoor equipment, and retailing of sporting equipment, bicycles, bicycle accessories & apparel. It is headquartered in Brisbane, Australia. The company was listed on ASX in July 2004.

SUL Details

SUL Rides on Robust Pipeline of Opportunities & Stable Dividend Policy:  The company has delivered decent top-line sales performance in 1HFY22, despite the Omicron challenges and a disrupted global supply chain. The company has achieved a record second quarter sales result, thanks to SUL’s omni-retail capability and robust execution strategies, driven by uptake in Click & Collect.

A Quick Look at 1HFY22 Result Highlights:

• Group Sales Performance: For 1HFY22, the company’s total sales stood at $1.7 billion. Group sales went up 18.1% as compared to 1HFY20. The company witnessed a strong rebound in sales in 2QFY22, with like-for-like sales growth of 3.6%.
• Gross Margin Highlights: Although, the company’s gross margin stood at ~46.6%, down 100 basis points (bps) year over year while expanded 170 bps over H1FY20. Business developments, improved sourcing, pricing and made-to-order ranging of inventory aided SUL to maintain gross margin in the previous year.
• Robust Online Sales: SUL’s online sales stood at $389 million, up 64% on pcp, representing 23% of Group sales. Click & Collect sales during the period came in at $226 million, up 109% and represented 58% of Group online sales. It is worth mentioning that ongoing investment in omni-retail were key positive for the company, as store lockdowns and consumer caution shifted demand to online channels.
• Liquidity Details: In 1HFY22, the company’s operating cash flow stood at $157 million, down from $370.2 million reported in the year-ago period, owing to higher investment in inventory, and increasing working capital requirements. As at 25 December 2021, the company had cash of $94.1 million, with no bank debt.

Financial Summary (Source: Analysis by Kalkine Group)

Key Metrics: For 1HFY22, SUL reported a net margin of 6.5%, compared to the industry median figure of 5.9%. EBITDA margin came in a 19.3%, compared to the industry median figure of 10.9%.

Profitability Profile (Analysis by Kalkine Group)

Top 10 Shareholders:

The top 10 shareholders together form around 56.75% of the total shareholding, while the top four constitute the maximum holding. Rowe (Reginald Allen) and Challenger Managed Investments Ltd. are holding a maximum stake in the company at 29.18% and 7.27%, respectively, as also highlighted in the chart below:  

(Analysis by Kalkine Group)

Dividend Track Record:

The company has a decent track record of rewarding shareholders through dividends. SUL declared an interim dividend of 27 cents per share. The company confirms its dividend policy is to pay out total annual dividends ranging from 55% to 65% of underlying NPAT. At CMP of $10.37, the company’s annual dividend yield stood at ~8.06%.

Dividend History (Source: Analysis by kalkine Group)

Key Risks: The company is exposed to risks and uncertainties caused by the COVID-19 pandemic and associated retractions. Further, the company is exposed to risks related to the changing domestic and international economic and macro-prudential and regulatory measures. SUL is exposed to the risks associated with the supply chain disruption.

Outlook: The company expects encouraging uplift in sales momentum in FY22. Supercheap Auto and BCF, in particular, are expected to deliver robust sales with both brands benefitting from higher in-stock positions in key categories. Amidst the COVID-19 led uncertainties, the company remains focused on executing its business strategy and investing for growth to deliver long-term value for its shareholders. SUL anticipates capital expenditure to be $125 million in FY22 and fund its store development program and invest higher in omni, loyalty and digital capability.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last six months, the stock has corrected by 14.78% and is trading lower than the average 52-week price level band of $9.73 - $13.73, offering a decent opportunity for accumulation. The stock has been valued using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company might trade at a slight discount to its peers, considering risks throughout the business cycle and disruption in the supply chain. For this purpose, peers like Harvey Norman Holdings Ltd (ASX: HVN), JB Hi-Fi Ltd (ASX: JBH), and others have been considered. Given the company’s track record of rewarding shareholders through dividends, decent revenue profile, project development pipeline, current trading level, upside in valuation and key risks linked with the business, we give a “Speculative Buy’ recommendation on the stock at the closing market price of $10.37, up ~1.97% as of 17 March 2022. Markets are currently trading in a highly volatile zone due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

SUL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined:

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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