Company Overview: Super Retail Group Limited’s (ASX: SUL) principal activities include retailing of auto parts and accessories, retailing of boating, camping, tools and equipment, fishing equipment and apparel, and retailing of sporting equipment, bicycles, bicycle accessories & apparel. The company changed its name to Super Retail Group Limited in 2010. The company has four reportable segments, namely (1) Supercheap Auto (SCA), (2) rebel, (3) BCF, and (4) Macpac. It was listed on ASX in 2004.

SUL Details

Enhancing Shareholder’s Value & Diversified Business Model Aids SUL: The company entered 2HFY22 positively with decent sales momentum. SUL will invest in the business, including digital, loyalty, and network, to implement its strategic significance and strengthen its four core brands. Recently, the company provided a trading update for the first 43 weeks of FY22 and dealt fairly over the Easter holiday period.

Trading Update Highlights (Source: Analysis by Kalkine Group)

Spotlight on Key Segmental Results for 1HFY22:

• Supercheap Auto: This segment deals with auto parts and accessories, tools, and equipment retailing. In 1HFY22, segmental sales stood at $616.1 million, down 6.9% year over year, but went up by 11.9% from 1HFY20. The company witnessed a robust rebound in sales during 2QFY22, with a growth of 4.1% like-for-like, driving a record pcp.
  

• Rebel: This segment deals with retailing of sporting equipment and apparel. In 1HFY22, segmental sales stood at $605.6 million, down 2.9% year over year, but went up by 11.6% from 1HFY20. Online sales came in at $187.4 million within this segment, increasing rapidly by 56% on a pcp basis and accounted for 31% of total sales.
  

• BCF: This segment deals with retailing of boating, camping, outdoor equipment, fishing equipment and apparel. In 1HFY22, segmental sales stood at $418.5 million, down 2.2% year over year, but went up by 47.6% from 1HFY20. Within this segment, online sales grew 51% on a pcp basis and represented for 18% of total sales.
  

• MACPAC: This segment deals with retailing of sporting equipment and apparel. In 1HFY22, segmental sales stood at $605.6 million, down 2.9% year over year, but went up by 11.6% from 1HFY20. Online sales came in at $187.4 million within this segment, increasing rapidly by 56% on a pcp basis and accounted for 31% of total sales.

Financial Snapshot (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%. The current ratio for 1HFY22 stood at 1.05x, slightly up from the 1.00x figure reported in 1HFY21.

Profitability Profile (Analysis by Kalkine Group)

Top 10 Shareholders:

The top 10 shareholders together form around 54.48% 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 5.4s%, respectively, as also highlighted in the chart below:                                                  

(Analysis by Kalkine Group)

Dividend & Balance Sheet: SUL has been driving shareholder value through regular dividends and business reinvestment. The Board of Directors have decided to pay a fully franked interim dividend of 27.0 cents per share in 1HFY22. The company has a dividend policy to pay out annual dividends between 55% and 65% of underlying NPAT. The company has a conservative balance sheet, with nil bank debt and a $94 million cash balance at the end of 1HFY22. A robust capital allocation strategy drives long-term sustainable growth and shareholder value. At CMP of $9.65, the company’s annual dividend yield stood at ~8.24%

Dividend Track Record (Source: Analysis by kalkine Group)

Key Risks:

• The Rebel segment was impacted by a decrease in footfall in CBD and large shopping malls during the Peak Christmas trading season.
• Also, delayed shipments and accessibility of new season stock from key global brands, due to COVID-19 led uncertainties, exposes the company to supply chain disruptions, which may hamper its company's financial performance.
• Further, the company is exposed to the changing domestic and international economic and macro-prudential and regulatory measures.

Outlook: Since 2019, the company has remained on track to continue its transformation strategy from traditional bricks and mortar to an Omni retail business, thus, making decent progress in improving the scale and profitability of its digital offering. SUL aims to invest further for future growth in delivering business improvements and offer a platform to generate value for its shareholders sustainably. For FY22, the company expects an encouraging uplift in sales momentum and anticipates having robust sales, with both brands (Supercheap Auto and Rebel) benefiting from higher stock positions in key categories. SUL foresees capital expenditure to $125 million in FY22, funds its store development program, and invests higher in Omni, loyalty, and digital capability.

FYY22 Strategies (Source: Analysis by kalkine Group)

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: In the last three months, the stock has been corrected by ~22.47% and is trading close to its 52-week low level of $9.55, offering a decent opportunity for accumulation. The stock has been valued using an 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 the risks of regulatory measures, disruption in the supply chain, COVID-19 led uncertainties and lockdowns, etc. For this purpose, peers like Harvey Norman Holdings Ltd (ASX: HVN), JB Hi-Fi Ltd (ASX: JBH), Premier Investments Ltd (ASX: PMV), and others have been considered. Given the company’s track record of rewarding shareholders through dividends, project development pipeline, encouraging like-for-like sales in Australia and new store openings, current trading level, indicative upside in the valuation, and key risks associated with the business, we give a “Speculative Buy’ recommendation on the stock at the closing market price of $9.65, down by ~3.015% as of 12 May 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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