Super Retail Group Limited

SUL Details

Like-for-Like Sales Growth: Super Retail Group Limited (ASX: SUL) is a retailer of four iconic brands, which includes Supercheap Auto, rebel, BCF, and Macpac in Australia and New Zealand. The company follows an omni-retail strategy exploring both in-store and online sales to meet the demand. The market capitalisation of the company as of 5 May 2021 stood at $ 2.64 billion. As per a recent trading update on 4 May 2021, the Group has announced that it has achieved like-for-like sales growth of 28% as at week 44 versus FY20. It has witnessed decent growth across all key brands, and particularly BCF and Macpac.

H1FY21 Performance Update: The company reported substantial growth in online sales with a contribution of 13% to the Group first-half sales of FY21, compared to 9% in pcp. To increase the number of loyal customers, the company is actively growing its prominent loyalty club membership base, which is a key driver of earnings growth. The membership strategy resulted in 62% of group sales, outpacing the in-store sales growth and attracted 700,000-plus customers to the programs, which reached 7.1 million active club members.

H1FY21 Revenue Performance (Source: Company Reports)

Key Risk: The company can reflect a crunch in profit margin as the covid-19 hit the logistic, shipping costs, inventory cost, which leads to increased cost of operating expenses.

Outlook: In the second half of FY21, the company expects the gross margin to be maintained at the same level as that of the first half period due to subdued levels of promotional activity on the back of strong customer demand.

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

Data Source: Refinitiv, Thomson Reuters, 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: The company has reported robust growth in the sales, strategically by using omni-retail store and also retaining loyal customers through events. The company's future strategy of increasing reinvestment in the business augurs well for future growth. As per ASX, the stock of SUL is trading above its average 52-weeks' levels of $ 5.861- $12.890. The stock of SUL gave a positive return of ~2.06% in the past three months and a positive return of ~1.28% in the past one month. On a technical analysis front, the stock of SUL has a support level of ~$11.494 and a resistance level of ~$12.756. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium to its peer average EV/Sales (NTM Trading multiple), considering the decent growth in online sales and robust financial performance in a difficult period of operations. For this purpose, we have taken peers such as Harvey Norman Holdings Limited (ASX: HVN), Coles Group Limited (ASX: COL), Baby Bunting Group Limited (ASX: BBN), to name a few. Considering the current trading levels and expected upside in valuation, decent like-for-like sales growth and improvement in margin performance, we recommend a ‘Hold’ rating on the stock at the current market price of $11.860, up by 1.194% as on May 05, 2021.  

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

Vita Group Limited

VTG Details

Business Update: Vita Group Limited (ASX: VTG) is engaged in the selling and marketing of products and services through its networks and brands. The market capitalisation of the company as on 05 May 2021 stood at ~$141.59 million. As per a recent update, Ryder Capital Limited has become a substantial shareholder in the company on 28 April 2021. It now holds 8,390,500 number of securities in the company.

H1FY21 Results Update: During the period, the company reported a decline in revenue by ~25% to $323.7 million due to the impact of the COVID-19 pandemic on the Information and Communication Technology channel. However, the company reported ~27% increase in the EBIT to $28.1 million when compared with the previous corresponding period. NPAT grew by ~27% to $18.4 million during the same period under consideration. The management has decided to pay an interim dividend of 5.6 cents per share for the period, which was payable om 9 April 2021.

H1FY21 Financial Performance (Source: Company Reports)

Key Risks: The company’s business is exposed to the vagaries of the impact of the COVID-19 pandemic, which might have further repercussions on its sales in the near term.

Outlook: The company believes that there is a decent growth potential for Artisan, with increased client demand and an expanding range of skin technology treatments. It expects to establish itself as a market leader going forward, supported by a network of approximately 70 clinics.

Stock Recommendation: As per ASX, the stock of VTG is trading below its average 52-weeks’ levels of $0.770-$1.200. The stock of VTG gave a negative return of ~19.52% in the past three months and a positive return of ~4.32% in the past one week. On a technical analysis front, the stock of VTG has a support level of ~$0.767 and a resistance level of ~$1.013. On a TTM basis, the stock of VTG is trading at an EV/Sales multiple of 0.2x, lower than the industry median (Consumer Cyclicals) of 2.0x. Considering the current trading levels and valuation on TTM basis, improvement in EBIT performance, decent performance from the Artisan segment and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.845, down by 1.170% as on May 05, 2021.

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

Note: 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.

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