Super Retail Group (ASX:SUP) announced a 25% fall in net profit to $81.1m for the financial year ending June 2015. Revenue rose 7.1% to $2.2bn, compared with $2.1bn in FY14. Super Retail Group owns Supercheap Auto, Rebel Sport and BCF.
The company declared a fully-franked dividend of 21.5 cents bringing the full year distribution to 40 cents. SUL’s dividend yields approximately 4.2% based on the last traded price of ~$9.55. The stock halved in price in 2014, falling from $14 to $7, however in 2015 SUL attempts to make a comeback. The equity has gained 34% year-to-date as it remains within its long-term ascending channel.
The slide in profit was widely expected by the market, hence there is no major share price movement following the full year results. With earnings per share (EPS) at 49.4 cents, SUL trades at a considerably high P/E of 19.3 indicating high expectations of earnings growth. Investors believe that the reduction in earnings is only temporarily and that management will be able to expand the company’s footprint in the domestic retail market.
Just as much as SUL’s shareholders, Managing Director and CEO Peter Birtles is confident about the year ahead and targets top line growth across the business. He said in a statement to the ASX: “In the year ahead, the Group would aim to deliver top line growth through increased like for like sales and the opening of new stores. The group would also focus on increasing overall gross margins, through private brand development and range, price and promotions management.”
Mr Birtles further states that he expects 20-30 new store openings in the next 12 months and improvements in EBIT margins as a “result of improvements in gross margin and a reduction in the operating costs incurred on the Group’s strategic programmes.”
While SUL’s fully-franked dividend and relatively stable sales revenue are attractive qualities, earnings volatility and high competition are general hurdles. Despite the FY15 struggles, SUL has remained within its long-term ascending channel (monthly chart). While capital growth may be limited, SUL could be attractive for anyone seeking a solid income stock. However it is currently not on Wise-owl's watchlist.
Author: Imran Valibhoy
Aug 21, 2015
Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.