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Analysts: Buy Super Group For Over 38% Upside!
Aspire, Hot Picks | 26 June 2015
By: Raymond Leung
Articles (142) Profile

Analysts' updates as at 26/06/2015

After several news announcements about Super Group were announced, the general market is paying more attention on coffee seller. Although its recovery pace has slowed down, analysts are still optimistic about its outlook.

This could be largely because of the upcoming new developments that are expected to move the counter’s price significantly in the medium and long-term.

Recovery Pace Slowed Down

Source: Revenue of Super Group, Financial Times

Source: Net Income of Super Group, Financial Times

After the announcement of a weak 2H14, prices of the counter fell as investors were worried about the performance of the group. However, news of its recovery went around the market as the counter rallied from January to April 15.

The rally was short-lived because the release of Super’s 1Q15 results revealed a weaker than expected recovery. This resulted in a 25 percent price correction from the recent peak.

Profits To Decrease Due To El Nino

Commodities analysts now warn of the El Nino conditions that will happen this year. Soft commodities such as coffee, crude palm oil (CPO) and sugar are expected to rise as their harvest decreases.

The profit margin of Super is strongly dependent on coffee prices, which accounts for 30 percent of the group’s sachet cost. Analysts from Maybank Kim Eng Research estimate that for every ten percent rise in coffee prices, gross profit of Super will decrease by 3.8 percent.

New Product Lines To Help Lower Margins

Source: Owl’s Partnership with Café Cagliari, Super Group

Meanwhile, Super’s subsidiary, Owl Beverage Specialist (OBS) and Italian coffee maker, Café Cagliari have announced a partnership last week. OBS will have the distribution rights of Cagliari’s full range of products and a franchise of its café in Asia.

Café Cagliari products include whole bean, ground coffee, capsule coffee, capsule machine, biscuits, coffee drinks, coffee sweets and sorbet. This partnership will enable Super to expand its product range and into the highly lucrative capsule coffee segment.

While this initiative is expected to bring in more revenue for Super Group, there are still worries about the impact El Nino will have on its profit margins.

Analysts’ Thoughts

Source: Dividend Per Share of Super Group, Financial Times

Nevertheless, Super is dedicated to repaying investors by giving out at least 50 percent of the group’s net profit. Based on the average dividend yield for the past five years, Super has an average yield of 3.37 percent. Analysts from Maybank Kim Eng reiterated their “Buy” call with a potential upside of 38.9 percent.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

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