Consumer Discretionary

Super Retail share price collapse presents buying opp: Morgans

Fri 04 Mar 22, 1:05pm (AEST)
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Key Points

  • Broker upgrade on strong sales, buying opportunity
  • Capex to Increase in FY22, to $125m
  • Stock has fallen circa -16% since announcing earnings miss against consensus forecasts

Shares in Super Retail Group Ltd (ASX: SUL) have now fallen circa -16% since announcing a strong first half FY22 result which nevertheless disappointed the market, where consensus estimates had put the net profit result about 2% higher.

But this share price collapse has created an opportunity according to analysts at Morgans, who upgraded their recommendation to Buy, citing strong sales growth, better inventory management and product sourcing.

Other brokers covering the stock similarly suggested it is being oversold, with UBS and Credit Suisse mentioning the cheap valuation as reasons to retain their existing Buy ratings.

At Thursday’s closing price of $10.81, Super Retail is currently trading at 8x FY21 earnings.

Higher costs marred bottom line

The group reported first half FY22 sales of $1.7bn, down -4% compared to the prior period, and statutory net profit after tax (NPAT) of $110.8m, down -36% on first half FY21.

Group gross margin, at 46.7%,  was about -1% lower than first half FY21, reflecting higher freight and logistics costs,  bigger inventory and the increase in home delivery sales to 10% of total sales.

Strong second half, capex to increase

Group CEO Anthony Heraghty said the strong sales seen in first half FY22 have continued into the initial stage of the second half.

“Looking forward, the group will continue to reinvest in the business, including digital, loyalty and network to execute our strategic priorities and grow our four core brands,” he said.

Capital expenditure in FY22 is expected to total $125m, up from $97m in FY21.

Capex in first half FY22 was $63.3m - $33.9m higher than the prior period, comprising logistics and IT spending of $31.4m, and $31.9m on new stores and refurbishments.

Super Retail plans to open 16 new stores and refurbish a further 40 existing throughout FY22.

The company seems to be handling the transition to online well, reporting that digital sales jumped 64%, to a record $389m.

 

What Brokers think

Macquarie: Sales ahead of forecasts but higher costs dented the bottom line, leading to the net earnings miss. Neutral rating retained with lower target price.

Citi: Net profit result was -6% below Citi’s estimate, and -2% below consensus forecasts, as sales beat expectations but costs hit the bottom line. Target price drops -5%, to $14.50, with Buy recommendation retained.

UBS: UBS liked the strong sales into the 2H22 so far, and how the retailer had shifted much of its trading online during covid. The concerns over the larger inventory are overstated and may turn out to be a driver of sales growth. Buy recommendation retained, with target price rising to $14 from $13.50.

Credit Suisse:  1H22 results did not meet forecasts, but the broker thinks momentum is strong heading into the 2H22. The company is exposed to growth in leisure spending, is relatively cheap and offers an attractive dividend yield. It maintained its Outperform rating, with a reduced target price.

Ord Minnett: 1H22 net profit beat Ord Minnett’s forecast but noted the market reaction stemming from the market consensus miss. Accumulate rating retained, target price reduced.

 

Written By

Ben Seeder

Journalist

Ben is a freelance contributing editor based in Tasmania. He has a Bachelor's Degree in Journalism and Government from the University of Queensland, and is a small-cap stock-picker.

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