Supergroup may be the best performing flotation of the year, but its shares have come off the rails a touch today.
The fashion retailer behind the Superdry brand has fallen 258p to £13.70 - a 16% decline - after it cautioned in its half year results that rises in raw material prices might affect gross margins in the next financial year. However the figures themselves were impressive - half year revenues up 65% to £90.3m and pretax profit 86% better at £14.6m - and the shares are still well ahead of the 500p float price.
The company was positive about its recent autumn/winter range and its new store fit-out, with 14 new shops and 13 concessions opened during the first half. It added that the early signs for Christmas trading were encouraging. Altium Securities upgraded from hold to buy, with analyst Philip Dorgan saying:
Current trade is said to be encouraging. One potential fly in the ointment is that there is no interim dividend (as we expected, the statement says that 'the company is best served by retaining its cash resources'). That said, with consensus expecting a full year dividend of only 8p, the shares are clearly not supported by yield.
SuperGroup can grow its store network in the UK significantly (we estimate from 55 to 114 over the next three years), but the main excitement is in its global partnership opportunity, through franchise and license agreement. The brand has created huge consumer awareness and demand is strong across the world, with its appeal fairly
immune to 'fashion'.
Peel Hunt said:
Overall, the results are in line, and we see upgrades likely with the January trading statement. However, following a stunning share price performance, the stock is now trading ahead of our target price, hence we will review our recommendation and target price..... Given the premium rating however and no upgrades today, coupled with the
gross margin comment, which we believe is already factored into estimates, the shares may struggle to make progress.
