SuperGroup is strong

SuperGroup will reveal its December sales figures on 14 January, and the mild Christmas could weigh on the revenues.

Source: Bloomberg

The company will post its full-year figures in July, and traders are anticipating revenue of £564 million and adjusted net income of £55.8 million. These estimates equate to a 16% jump in revenue and a 16.7% rise in adjusted net income. The company will announce its second-half figures on the same date, and traders are expecting revenue of £324 million, and that compares with the first-half revenue of £254 million.

SuperGroup’s turnaround under the leadership of Euan Sutherland continues, and the clothing company posted a 54% jump in underlying pre-tax profits. The surges profit is a far cry from the string of profit warnings that that firm issued between October 2011 and October 2014.

When taking the top job, Mr Sutherland was tasked with making the brand better known overseas. Out of the 14 new stores opened in the first half of the year, the vast majority were outside of the UK. Europe is Euan Sutherland’s target as he feels there isn’t much more room to grow at home.

SuperGroup is making headway into the two biggest economies in the world. Exposure to China is being gained through a joint venture with Trendy, and the company lowered the forecast for its US business as problems from its American acquisition persist. SuperGroup is taking a five-ten year view on the US as it wants to get it right rather than rush it.

In the first half of the year inventory write-downs fell by 5.8%, but SuperGroup suffered previously because of unseasonably warm weather, and December was the mildest on records, and retailers like NEXT and Marks and Spencer were hurt by it.

SuperGroup has a relatively high forward 12 month price: earnings ratio of 23.09, and the price to book value ratio of 4.22 is at the high-end of the range for a retailer. The dividend yield of 0.44% is uncompetitive for the sector but the company just started paying dividends so at least it’s a step in the right direction.

Equity analysts are very bullish on SuperGroup, and of the ten ratings, seven are buys, and three are holds. The average target price is £17.05, which is 8.3% above the current price.

Technical analysis from Joshua Mahony MSTA, Market Analyst at IG.

SuperGroup's shares have been floundering over the past two months, ever since price came into contact with a five-year trendline dating back to early 2011. The ability to break through both trendline and Q4 2015 resistance around £17.00 will be crucial for the medium-term outlook for the firm.

Considering the consistency of the uptrend throughout the first half of 2015, this recent unpredictability and choppiness has made trading difficult and thus a close above £17.33 would be a strong signal that we could be set for a return to the upward trend.

With the stochastic turning higher, there is reason to believe that we could be set for a rally in the coming days, yet given the choppiness of late, it makes more sense to await a breakout rather than trading now.

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