Super Cheap Auto (SUL): Australian company share market analysis 2009
Elio D'Amato, Chief Executive Officer and Head of Research at Lincoln profiles Super Cheap Auto Group Limited (SUL) and says SUL has returned as a Stock Doctor Star Stock following a successful FY09.
SUL is a discount retailer of automotive parts and accessories, camping, fishing, boating and cycling equipment. The company operates though its established Supercheap Auto and BCF (Boating, Camping and Fishing) stores and more recently growing its Goldcross Cycles chain.
At the time of publication (11 November 2009) Supercheap Auto has performed surprisingly well over the last two years given the economic conditions which have both seen record fuel prices and the end of major players in the automotive industry. Management has shown its capacity to rise to challenges and cope with various threats resulting from rapidly changing circumstances. They have been rewarded with strong earnings growth and increasing market share, even in highly competitive markets. With a solid management team, good growth prospects and an increasing dividend payout ratio, SUL may be an attractive investment option.
Goldcross Cycles remains the 'dark horse' in the SUL portfolio. Whilst sales improvements have been notable, this small division is still loss-making and management will need to implement a successful business model for it before contemplating expansion plans.
The company meets Lincoln's Golden Rule Number One for successful investing in that the company is in a 'Strong' financial health position following the release of its latest annual results. Net operating profit before tax and significant items rose by 13.8% to $41.886 million from $36.806 million in the previous year driven by the strong sales from its traditional operations of Supercheap Auto and BCF. Pre abnormals EPS increased by 23.81% from 24.23 cents to 30 cents. Finally, ROA improved marginally from 9.56% to 9.57%.
On 11 November 2009 the company closed at $5.40 which, when compared to the Lincoln Valuation of $5.98, suggests that the company is potentially undervalued at current prices. SUL pays a modest dividend yield of 3.33% fully franked.
SUL remains optimistic about the future. The company has benefited from brisk trading in FY10 with around 16.1% like-for-like sales growth to the end of October. The company's two core businesses, Supercheap Auto and BCF, continue to perform strongly and expansion will be in the form of 16 new stores and 40 refurbishments this upcoming year. As in the previous year, BCF is seen to benefit from the growing number of Australian families taking low cost recreational vacations instead of travelling overseas or spending time in coastal apartments. Management is confident that SUL's businesses will continue to grow faster than the markets they operate in, but they expect that there may be some slowing of market growth as unemployment and interest rates rise over the coming two years. However, with conditions improving particularly in the automotive sector and favourable exchange rate movements, we expect the company to shine going forward.
Important information
Author: Lincoln Indicators Pty Ltd ACN 006 715 573 (Lincoln) AFSL 237740.
This information is current as at 11 November 2009.
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