Super Group - DBS Research 2016-02-24: Negatives priced in

SUPER GROUP LTD S10.SI

Super Group - Negatives priced in

4Q15 earnings above, led by higher margins, and better than expected Branded Consumer sales
Final DPS of 1.2 Scts declared
Downside priced in, trading at < -1SD PE
Upgrade to BUY, TP raised to S$0.91.

We upgrade SUPER to BUY after the stock corrected by c.13% since our last note.
We now find there is value in the stock after 4Q15 turned in a better than expected earnings performance.
FY15 was a difficult year for SUPER with weak regional consumption, competition and higher costs leading to its share price underperforming.
SUPER now trades below -1SD of its historical mean and we believe negatives have been priced in.
Furthermore, the better than expected 4Q15 results show signs of earnings improvement which, if sustained, will drive the share price going forward.
Besides, there could be more upside if earnings outperform our below consensus estimates.

4Q15 beat our expectations on better gross margins and smaller than expected decline in revenue.
Noteworthy is the smaller than expected sales decline in its core coffee products, recovery in sales of cereal products, and China’s Branded Consumer development doing better than expected.
Gross margins improved to 39% as coffee bean prices drifted lower to average US$1,542/ton in 4Q15.
Going forward, we see earnings supported by better sales traction from new product launches, and stable margins from low input prices.

Pegged to 20x PE. We raise our target price to S$091, based on 20x price earnings multiple on FY16F earnings.
We believe our TP is conservative, based on c.-1SD of its historical mean PE valuation and below consensus earnings estimate.

Surge in commodity prices. We expect SUPER to enjoy benefits of lower coffee bean prices of c.US$1,500/mt to US$1,700/mt compared to average of US$2,000 in 2014. This should aid margins going forward.
Poor weather could impede our positive margin outlook and derail our earnings estimate for the stock.

Alfie Yeo DBS Vickers | Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2016-02-24

DBS Vickers SGX Stock Analyst Report BUY Upgrade HOLD 0.91 Up 0.85