Super Retail Group Limited

Performance of 4 Iconic Brands: Super Retail Group Limited (ASX: SUL) is involved in the operations of specialty retail stores in the automotive, tools, leisure and sports categories. The market capitalisation of the company stood at ~$1.86Bn as on 16^th July 2019. Recently, the company, via a release, announced that UBS Group AG and its related bodies corporate have ceased to be a substantial holder in SUL on 25^th June 2019. As per the release dated 11^th June 2019, the company appointed Mr Benjamin Ward as Managing Director for its Auto division effective from 29^th July 2019.

Mr Benjamin has an experience of almost 25 years in retailing, product-sourcing, merchandise and store management. Super Retail Group has a network of 688 stores throughout 4 iconic brands in high involvement categories. In FY18, Supercheap auto reported sales of A$1.006 Bn and NPS of 59%.

 

Financial Summary (Source: Company Reports)

With respect to Omni-retail platform, the company added that the cost to serve inflation was mitigated by click and collect & Omni customer behavior.When it comes to trading update, the Auto retailing business reported like for like sales growth of 4.2% in the first 17 weeks of 2H and 2.7% year to date to 27 April 2019. In terms of outdoor retailing, the BCF reported like for like sales growth of 5.3% in the first 17 weeks of 2H and 3.3% YTD to 27 April 2019. The competitive pricing pressure has not changed with respect to outdoor retailing. The whole group posted like for like sales growth of 3.3% YTD to 27 April 2019.

In the 1H FY19, the company witnessed a rise in total inventory from $545.5Mn in June 18 to $617.9Mn in Dec 18 because of growth in private brand volumes, focus on lifting in-stock availability and the lower Australian Dollar.The net inventory has increased from December 2017 by $17Mn, after adjusting for Macpac net inventory has reduced by $13Mn. The net debt of the company has witnessed a rise on pcp because of debt funding of Macpac acquisition of $133.8Mn in April 2018.

What to Expect: Super Retails Group Limited’s three core brands enjoy the market leading customer loyalty performance. The Macpac is an emerging & credible brand in a high growth segment. The return on equity of the company stood at 9.1% in 1H FY19 in comparison to the industry median of 7.7% and it reflects that the company has been delivering higher returns to its shareholders as compared to the broader industry, which might attract the attention of the market players moving forward.

Stock Recommendation: The company reported a gross margin of 44.9% against the industry median of 23.3%. The company made an investment in new and refurbished store and the capex has been split into the different proportion (i.e.$3.8 Mn in Auto, $3.6Mn in Outdoor and $2.0 Mn in Sports). Coming to the stock’s past performance, it produced returns of 14.88% and 47.65% in the time span of three months and six months, respectively. Currently, the stock is trading slightly towards a 52-week high level of $10.44 with PE multiple of 14.56x. Hence, considering the above-stated facts coupled with decent outlook and current trading level, we give a “Hold” recommendation on the stock at the current market price of A$9.610 per share (up 1.052% on 16^th July 2019).  

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