SuperGroup shares double on superfast growth

What a year for SuperGroup fans. Euan Sutherland, the man who left the "ungovernable" Co-op, has shown exactly what he can do, facilitating a spectacular recovery at the owner of the popular Superdry brand and a doubling of the share price since January.

A much anticipated design collaboration with Hollywood star Idris Elba should be on the racks before Christmas, too, and full-year profits look set to beat forecasts. That promise of a maiden dividend at the interim results looks "super safe".

Driven by both its retail and wholesale divisions, group sales jumped 22% in the half-year ended 24 October to £255 million. Granted, SuperGroup is performing against weak comparatives in 2015, but rapid online trade pushed retail like-for-like revenue up an impressive 15.5% in the second quarter to £91.6 million. Group gross margin should also be better-than-expected, although currency movements are unhelpful.

Ending the period with £80 million of net cash, an interim dividend of 6p is a shoo-in, according to Investec Securities. And a full-year payout of 19.3p might be conservative.

Clearly, overall revenue growth benefited from SuperGroup's retail store space expansion, with 14 new shops opened since April. There are more to come and there's progress on its 10-year joint venture with China's Trendy International. As it stands, the group has 192 stores globally, but analysts at Peel Hunt reckon the European roll-out and US expansion will seriously accelerate earnings growth over the next two-three years.

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As retailers gear-up for Christmas, SuperGroup's collaboration with star of the Sky TV ads Idris Elba will hit the stores this month. After disappointing ranges last year, founder Julian Dunkerton is back at the drawing board with new Sport and Snow ranges, which should help Sutherland achieve his four-pronged strategy. The new boss is focusing on broadening and strengthening the group's appeal, expanding its product range, and executing growth opportunities in new markets and online.

With retail behind much of the momentum, the division has a new global retail director who will steer future expansion. Leaving Tesco behind, Nick Tatum will be responsible for the retail operations and logistics.

"With a successful first half completed, the business is well placed for the all-important peak season and we remain confident of delivering full year profits in line with our existing guidance although comparatives throughout the second half are more challenging," said Sutherland.

More growth in store?

Recovering from profits warnings and accountancy issues, SuperGroup's share price has more than doubled since Sutherland took over at the end of 2014, rocketing from 750p to a 19-month high of 1,598p on Thursday (see chart). The firm repeated profit guidance of £60-£65 million flagged in March, which puts the shares on around 24 times forward earnings.

"SuperGroup is now looking more fairly valued in our view," says Cantor Fitzgerald consumer analyst Freddie George. But Kate Calvert over at Investec believes there's more to come. "Our target price, based on 10% CY16 PE discount to the European growth apparel retailers average, rises to 1850p (1450p) reflecting the upgrade & peer group re-rating," she says.

SuperGroup's rapid share price rally was something our resident stockpicker Edmond Jackson predicted might happen when he covered the company in the spring.

He was right, and we added in July that the bounceback, by then already well underway, "may have further to run".

Shareholders sitting on fat profits might deem it sensible to take some cash off the table, and SuperGroup's share price will, at some point, gravitate back to the 200-day moving average.

For now, however, earnings growth predicted well into double-digits for years to come, alongside huge potential to expand its chain of shops worldwide, implies that valuation multiple does not look excessive.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.