Investment Thesis
- Trading below our valuation and on attractive trading multiples and dividend yield.
- Strong tailwinds/fundamentals in SUL’s four core segments. For instance, sales for vehicle aftermarket continue to remain strong (with increase in second hand vehicle sales (Supercheap); travellers seeking social distancing and hence moving away from public transport (Supercheap); with Covid lockdown measures in forced, more people are spending their holidays domestically (BCF; macpac), utilising their vehicles (Supercheap); growing awareness of fit and healthy lifestyles (rebel).
- Solid capital position.
- Strong brands in BCF, macppac, rebel and Supercheap with solid industry positions in largely oligopolies and solid store network.
- Transitioning to an omni-channel business. Whilst previously the business has been modelled on like-to-like store numbers, management now thinks of business metrics based on club members and has been able to grow the active club membership much faster than store numbers (store numbers in last 5 years have grown +2% CAGR vs active club members at +10% CAGR), providing it with an opportunity to expand customer base and therefore revenue base without significant capex for investment in stores (most of the customers are omni channel). Management continues to push towards expanding its online sales (Covid-19 added to this tailwind), with online sales penetration of ~13-15% of total sales currently and expected to reach 20-25% over the next 5 years.
- Attractive loyalty members program, with over 8 million members.
Key Risks
- Rising competitive pressures.
- Any issues with supply chain, especially as a result of the impact of Covid-19 on logistics, which affects earnings.
- Rising cost pressures eroding margins (e.g., more brand or marketing investment required due to competitive pressures).
- Disappointing earnings update or failing to achieve growth rates expected by the market could see the stock price significantly re-rate lower.
1H22 Results Highlights
Relative to the pcp:
- Sales of $1,705.1m was down -4.0% vs 1H21 but up +18.1% vs 1H20.
- Segment EBITDA of $329.4m was down -21.2% vs 1H21 but up +27.0% vs 1H20.
- As a result of supply chain disruption, SUL’s gross margin of 46.7% was 100 bps below pcp but 170 bps above 1H20, driven by improved sourcing, pricing and tailoring the range of inventory, offset by higher freight and transport costs, growth in home delivery sales and some normalisation of promotional activity in 2Q22.
- Normalised NPAT of $112.8m was down -35.8% vs 1H21 but up +60.9% vs 1H20 (Normalised EPS of 49.9 cents).
- SUL was able to expand its store network, completing 15 new store openings and 28 refurbishments and relocations.
- SUL maintains a conservative balance sheet with no bank debt and $94m cash balance.
- The Board declared a fully franked interim dividend of 27.0cps and reaffirmed its dividend policy to pay out total annual dividends of between 55% and 65% of underlying NPAT.
Company Profile
Super Retail Group (SUL) is one of Australasia’s Top 10 retailers. SUL comprises four core segments. (1) BCF: Australia’s largest outdoor retailer focused on selling Boating, Camping and Fishing products. (2) macpac:retailer of apparel and equipment with their own designs focused on outdoor adventurers. (3) rebel:retailer of branded sporting and leisure goods and equipment for casual and serious fitness enthusiast. (4) Supercheap Auto: specialty retail business which specialises in automotive parts and accessories.
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Business Strategy and Outlook:
With divestitures of Stubhub, eBay Classifieds, and Gmart largely in the rearview mirror, eBay’s business looks remarkably similar to its genesis: a customer-to-customer e-commerce platform connecting hundreds of millions of buyers and sellers worldwide, with an emphasis on non-new, seasoned goods. The core eBay Marketplace business should have plenty of room to run, considering management’s estimated $500 billion total addressable market for non-new, seasoned goods, and could benefit from swelling interest in resale markets and a strong pull-forward in e-commerce demand in 2020 and 2021.
eBay’s Marketplace generated the sixth-highest gross merchandise volume, or GMV, among global players in 2021, and renewed attention by management in core verticals like collectibles, used and refurbished goods, liquidation inventory, premium shoes, and luxury jewelry–often products without a benchmark average sales price, or ASP, index (limiting price comparison pressure and leaning into the marketplace’s edge in price discovery)-appears clever. The eBay’s, 147 million active buyer base, and recent platform improvements (including managed payments, promoted listings, and inventory management services) should prove sufficient to solidify advantages in many targeted verticals.
Financial Strength:
eBay’s financial health is sound. The company has access to a $1.5 billion commercial paper facility and a $2 billion line of credit represent attractive backstops, particularly when considering that the firm maintained only $4.2 billion in net debt at the end of 2021, with a further $5.8 billion available in short-term investments. eBay’s highly free-cash-flow generative business model, comfortable coverage of interest payments (7.8 times over the same period), and investment-grade credit rating suggest that the firm should have no trouble meeting its fixed obligations.
Management again raised its buyback facility again in the fourth quarter of 2021, to $6 billion from $2 billion prior. With $1.6 billion in cash and equivalents on the balance sheet at the end of 2021, eBay maintains a bulletproof balance sheet, with substantial flexibility to meet fixed interest and principal payments, invest in attractive internal investment opportunities, and return a generous amount of capital to shareholders through share repurchases and dividends.
Bulls Say:
- The firm’s managed payments rollout executed seamlessly, and offers optionality for auxiliary financial services down the line.
- Recent successes in higher-touch luxury resale and collectibles categories offer a blueprint for sustained growth in the C2C marketplace.
- The addition of auction-based items and offsite advertising could catalyze better sell-through rates and monetization in the promoted listings business.
Company Profile:
eBay operates one of the largest e-commerce marketplaces in the world, with $87 billion in 2021 gross merchandise volume, or GMV, rendering the firm the sixth-largest global e-commerce company. eBay generates revenue from listing fees, advertising, revenue-sharing arrangements with service providers, and managed payments, with its platform connecting more than 147 million buyers and roughly 20 million sellers across almost 190 global markets. eBay generates just north of 50% of its GMV in international markets, with a large presence in the U.K., Germany, and Australia.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.