Super Group: Come along, guys, cough up the dividends
Market might have lost interest due to its stingy payouts, but higher earnings could change that
It was a little more than 10 years ago that supply chain management conglomerate Super Group – then headed by Larry Lipschitz – got itself in a real fix.
Older market watchers will remember that despite being laden with chassis-bending debt, Super Group kept its foot on the pedal and even paid out dividends.
Ultimately the group was forced to resort to two rights issues to ensure the operational engines did not seize.
Under new management a more cautiously driven Super Group has actually performed commendably in recent years. Dependable cash flows and a stoutly rebuilt balance sheet are most reassuring.
Lately, though, the market has lost some of its earlier enthusiasm for the share. After peaking at around R44 in February last year, Super Group shares have reversed all the way down to current levels of under R34.
Perhaps the market is registering disappointment at the determination of management not to pay out dividends at this stage. Maybe it’s just part of the general small cap malaise that has pervaded the JSE.
A trading update released on Monday, however, offered some fundamental evidence that Super Group is still being steered in the right direction.
The update suggested turnover in the six months to end December should be up by between 6% and 10% to between R19bn and R20bn. Headline earnings should come in 9% to 15% higher to between 170c/share to 187c/share.
Presuming Super Group is capable of doubling earnings in the second half then a bottom line full year earnings should comfortably exceed 360c/share.
That puts the share on a earnings multiple of less than 10 times – a modest rating considering Super Group’s recent track record … not to mention the chance to release the pent-up pressure over dividends.