How Should Investors perceive these Dividend Stocks from Retail Space- SUL, UNI

SUPER RETAIL GROUP LIMITED

SUL Details

This report is an updated version of the report published on 1^st June 2022 at ~3:55 PM GMT

Investing in Future: Super Retail Group Limited (ASX: SUL) belongs to the Specialty Stores sector and operates multiple portfolios of brands across Australia like Supercheap Auto, Macpac, rebel, and BCF. SUL operates multiple stores under different brands with the aim to reach 790 stores under all brands by 2026.

• The company has improved its online delivery fulfillment metrics by reducing its freight expense by 60 bps and freight recovery increase to 60 bps leading to Net freight expense decline by 120 bps in H1FY22 relative to H1FY20.
• Primary focus of SUL is to invest in omni retail segment and capture growth in online market where online sales has increased from 7% to 23% of total revenue. In FY19 customers by onmi channel represents 8% while in H1FY22 the representation increased to 20%.

Group online revenue Performance, (Source: Analysis by Kalkine Group)

Key Risks: The spread of COVID-19 can act as a risk for SUL due to disruption in the supply chain and employee availability, which will affect its execution of business model transition. The large-scale shift in the competitive landscape act as another risk for a company’s business strategy. Economic disruption or unexpected changes in macroeconomic factors can impact its future results.

Outlook: The success of Omni-channel and the increase in online transactions help the company to successfully leverage its store network which eventually contributes to increasing its margins. Group continues to follow a dividend policy to pay between 55% to 65% of underlying NPAT.

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

Stock Recommendation: The stock of SUL is trading below its average 52-week low-high level of $9.170-$13.730, offering a decent opportunity for accumulation. The stock has been corrected by ~9.71% in the past one month. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a discount to its peers, considering disruption in supply chain and employee shortage, macroeconomic factors, and competitive landscape. For the purpose of this valuation, a few peers like JB Hi-FI Ltd (ASX: JBH), Metcash Ltd (ASX: MTS), Premier Investments Ltd (ASX: PMV), and others have been considered. Considering the expected upside in valuation, transition to onmi channel, decrease in net freight expense, rise in club membership, growth in revenue, current trading level, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $9.420, as on 1^st June 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

SUL Daily Technical Chart, Data Source: REFINITIV  

UNIVERSAL STORE HOLDINGS LIMITED

UNI Details

The report is the full version of the report published on 1^st June 2022 at ~3.55 PM GMT.

Recent Updates: Universal Store Holding Limited (ASX: UNI) operates in Apparel Retail sector in the fashion market segment in Australia and it focuses on developing a range of local and international brands to develop an exclusive style for young fashion customers.

• UNI recently amended its securities trading policy and informed the mandated trading blackout period on the release of half-yearly and full-year results. The blackout period will be on 30^th November (half-yearly results) & 31^st May (Full-year results) each year until 10:00 am AEST on ASX trading day.

Quick Lookback:

• UNI recently updated its H1FY22 results where it reported 8.2% decline in revenue from H1FY21 while online contribution in total sales surged to 19.3% from 12% in H1FY21.
• The H1FY22 result shows the underlying cost of doing business increased by $1.5 million to 37.3% of sales compared to 29.5% of sales in H1FY21, mainly due to investment in the digital marketing channel.
• Board recently paid a dividend of 11 cents per share (on 28^th March 2022) and in the future management will target to match the annual payout between 60% to 80% of statutory NPAT as per its dividend policy.

Dividend Per Share, (Source: Analysis by Kalkine Group)

Key Risks: The company faces risks from supply chain disruption because the relocation of distribution centers is still in progress. The rising competition put a threat on the company’s industrial positioning.  

Outlook: During the first eight months the H2FY22 revenue was up 5.0% relative to H2FY21, this is an increase of $1.5 million. The company is expected to add up three new stores in the next six months with long-term target to operate 100+ stores across Australia and New Zealand.

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

Source: Analysis by Kalkine Group

Stock Recommendation: The stock of UNI is trading below its average 52-week low-high level of $4.220-$8.560, offering a decent opportunity for accumulation. The stock has been corrected by ~13.33% in the past one month. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a discount to its peers, considering supply chain disruption, increase in cost of doing business, and competitive landscape. For the purpose of this valuation, a few peers like Super Retail Group Ltd (ASX: SUL), Accent Group Ltd (ASX: AX1), City Chic Collective Ltd (ASX: CCX), and others have been considered. Considering the expected upside in valuation, rollout of new stores, expected reduction in cost, current trading level, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $4.420, as on 1^st June 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

UNI Daily Technical Chart, Data Source: REFINITIV  

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

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

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a 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.

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