##{"id":58717,"date":"2011-08-22T12:21:49","date_gmt":"2011-08-22T02:21:49","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/08\/22\/super-cheap-retail-a-true-standout\/"},"modified":"2011-08-22T12:21:49","modified_gmt":"2011-08-22T02:21:49","slug":"super-cheap-retail-a-true-standout","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/08\/22\/super-cheap-retail-a-true-standout\/","title":{"rendered":"Super Cheap Retail A True Standout"},"content":{"rendered":"

\n\t– Super Retail delivers standout result
\n\t– FY12<\/span> trading has also started solidly
\n\t– Improved value implies upside, ratings upgraded<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tSuper Retail Group ((SUL<\/span>)) has managed to buck the weak retail trend in Australia, delivering a 46% increase in FY11<\/span> net profit to $55.6 million. The result was helped by better than expected gross margins, which more than made up for a 52-week trading period compared to a 53-week period last year.<\/p>\n

\n\tAccording to Credit Suisse, the improvement in gross margins was the result of improved trading terms, supply chain efficiencies and better purchasing rates. The improvement carried across all the divisions of Super Retail and, as Morgan Stanley notes, came despite the tough retail environment.<\/p>\n

\n\tThe solid performance has to date carried through to FY12<\/span>. UBS notes like-for-like sales for both the Super Cheap Auto and BCF<\/span> divisions are up 5% in year-to-date terms for 1Q12<\/span>. Growth is expected to continue in both divisions thanks to extensions to existing product categories and further improvements in sourcing.<\/p>\n

\n\tThe result was a standout in UBS's view, as it highlighted strong brands and good momentum from the product sourcing strategy of management. The other plus is a strong balance sheet, as UBS sees this as allowing for further expansion to product categories. Possible examples for the broker include the sports\/fitness and hardware\/tools sectors of the market.<\/p>\n

\n\tPost Super Retail's full year result market forecasts have seen some adjustments, UBS increasing its earnings per share (EPS) forecasts by 3-4% through FY14<\/span> but both Goldman Sachs and Credit Suisse have trimmed estimates by a similar percentage.<\/p>\n

\n\tConsensus EPS forecasts for Super Retail according to the FNArena<\/span> database now stand at 51.6c<\/span> for FY12<\/span> and 58.4c<\/span> for FY13<\/span>, which suggests solid growth from the result of around 43c<\/span> delivered in FY11<\/span>.<\/p>\n

\n\tLooking ahead, Credit Suisse suggests apart from further growth in both the core Super Cheap Auto and BCF<\/span> divisions, the Ray's Outdoor division is also expected to lift returns as ongoing synergies with BCF<\/span> are realised<\/span>. RBS<\/span> Australia also expects better things from Ray's, as previous legacy issues with respect to inventory and stock levels appear to have been sorted out.<\/p>\n

\n\tWhile Goldman Sachs suggests the market may be disappointed by the decision to retain the Goldcross<\/span> business, losses for this division are likely to be reduced going forward in the broker's view. UBS agrees.<\/p>\n

\n\tThe revised earnings forecasts for Super Retail continues to suggest value in the stock, as Credit Suisse notes its forecasts imply a FY12<\/span> earnings multiple of around 12 times. Morgan Stanley is similarly positive, as along with solid comparable sales growth potential, Super Retail is also expected to deliver a meaningful expansion in store footprint in coming years.<\/p>\n

\n\tRecent share price weakness has also factored into the views of RBS<\/span> and UBS, both brokers upgrading to A Buy rating on Super Retail from Hold previously. This leaves Super Retail as rated Buy by five of the six brokers in the FNArena<\/span> database who cover the stock. <\/p>\n

\n\tMorgan Stanley and Goldman Sachs (not in FNArena's<\/span> regular group of stockbrokers) are similarly positive, both retaining the equivalent of Buy ratings on Super Retail post the result. Morgan Stanley's Buy is relative to an In-Line view on the Australian Emerging Companies sector.<\/p>\n

\n\tThe consensus price target for Super Retail has come down slightly, now standing at $7.36 against $7.58 prior to the result. The consensus price target implies upside of around 17% from current share price levels.<\/p>\n

\n\tShares in Super Cheap today are trading higher and as at 12.05pm<\/span> the stock was up 14c<\/span> at $6.26. This compares to a trading range over the past year of $5.48 to $7.49.<\/p>\n

\n\tAlso note the prospective dividend yield on the basis of consensus forecasts is for 5.1% this year and for 5.9% next year, at today's share price (100% franked).<\/p>\n

\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"