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Although supremes business is not just disposable vapes, they also supply a lot of liquids however there would be a big impact
Https://www.theguardian.com/society/2023/sep/11/ban-on-single-use-vapes-in-uk-could-be-imminent
Supreme have enjoyed fantastic revenue from disposable vapes, which has allowed the business to expand, currently finishing off a manufacturing and distribution centre. Group is well positioned to sell in to Europe, and enjoys other revenue streams such as nutrition and batteries, albeit vaping is the main driver.
The Group has over 3,300 active business accounts with retail customers who manage over 10,000 branded retail outlets. Customers include B&M, Home Bargains, Poundland, The Range, Sports Direct, Londis, SPAR, Costcutter, Asda, Halfords, Iceland and HM Prison & Probation Service.
Disposable vapes obviously a concern, but feels overdone.
People don’t like them, also refill vapes are probably better environmentally anyway. I’m wondering if the warehouse is on fire or something. This is 200p SP in a rational market all day long 🤨
Yes see that now thanks
The concern is the possibility of a ban on disposal vapes , a current large revenue stream
Have i missed something or was that an opportunity to buy in here for another 70-100%, position started.
Final dividend of 2.2p per share. This will be paid on 29 September 2023 to shareholders on the register at the close of business on 1 September 2023. The ex-dividend date will be 31 August 2023.
Dartron, if the holdings were different the Tobacco majors might snap this up - they certainly have the past track record of acquisitions - and are focused on future markets post "combustibles" as they so delicately describe ciggies.
But Sandy owns 57% so any kind of hostile takeover is impossible and thus it turns to whether he would sell. My instinct is he enjoys what he does too much to sell it at any price. Having said that his holding is worth £75m at today's prices so if he were offered £150m to sell who knows - I know what my answer would be if I were in his shoes :)
If we all got taken out at £2.20/share I'd be happy with that too.
Just watched the v markets interview - I was very impressed with both Sandy and particularly Suzanne the CFO. Will look to add more here. Do you think this could be a take over target due to the share price not reflecting the intrinsic value here?
A Department of Health and Social Care spokesperson said: "Our ambition is for people to live longer, independent lives in good health, and we are committed to improving healthy life expectancy by five years by 2035 and reducing the gap between areas where it is highest and lowest by 2030.
"We have introduced calorie labelling, restricted the placement of less healthy food in shops, provided the largest ever single increase in drug and alcohol treatment and recovery funding in England, and will help a million smokers across England quit by giving them a free vaping starter kit.
Supreme plc conducted an Investor Presentation covering its results for the year ended 31 March 2023. Sandy Chadha (CEO) and Suzanne Smith (CFO) ran investors through financial and operational highlights of the period, which included 19% revenue growth and strong cash generation.
They talked through the performance of each main division including the master distributor opportunity for Elfbar and Lost Mary within Vaping, and the recovery they are seeing in Lighting. The management team highlighted the very strong start to FY24 and answered an wide-ranging Q&A session from the viewing audience. The full video has been divided into chapters as below:
0:00:23 Supreme at a glance & key investment highlights
0:04:55 Financial highlights & Operational summary
0:12:06 Outlook
0:13:53 Batteries
0:15:07 Lighting
0:16:27 Health & Wellness
0:17:59 Vaping
0:29:57 Master distributor opportunity
0:32:24 Ark, Trafford Park
0:34:18 Financial overview & summary
0:38:54 Questions & Answers
Link to video: https://www.equitydevelopment.co.uk/research/investor-presentation-fy-results-july-2023
Detailed new research report (and reminder of the investor presentation this morning at 11am with Supreme management, sign up here: https://www.equitydevelopment.co.uk/news-and-events/supreme-investor-presentation-6july2023)
"Strong FY23 results backed by vaping acquisitions"
For the year to 31 March 23, Supreme reported revenue of £155.6m, +19%YoY (with H2 revenue rebounding 27%YoY versus H1 +6%YoY), and (adj.) EBITDA of £19.4m, -8%YoY (compared to H1 -19%YoY). Revenue was ahead of our estimate of £150m; (adj.) EBITDA matched our outlook. The Vaping product segment recorded revenue of £76.1m +75%YoY, 49% of total, with 40% of incremental revenue (c.£13m) generated by the acquired Liberty Flights, Cuts Ice and Flavour Core operations. Even excluding the contribution from acquisitions, we estimate that growth was an impressive 45%YoY. Batteries revenue grew 13%YoY to £39.5m, 25% of total. Lighting revenue declined 43%YoY (£15.4m) due to customer overstocking issues, but H2 recovered 50% on H1. Sports Nutrition & Wellness revenue grew 5%YoY (£16.8m), and the Branded Household Goods & Other segment contributed £7.8m of revenue (-17%YoY).
As of 31 March, the Group was (pre-IFRS 16) cash positive (£3.2m), having generated £19.3m in (net) cash from operations, in addition to which the disposal of TJuice yielded £4.0m. £30m in borrowing facilities offers the potential to grasp further suitable M&A opportunities. Consistent with Group policy of a 25% of net profit dividend policy, a dividend of 3p/share is payable for the year.
Supreme has announced a master distributor agreement in the UK for the popular Elf Bar and Lost Mary (QM600) range of disposable vapes across its retail network; we estimate that in FY24 this could add c.£25m in additional revenue and c.£2.0m in (adj.) EBITDA. The brands are owned by Shenzhen iMiracle Technology Co. Ltd., in China, and are some of the most popular disposable vape brands in the US (e.g. the Elf Bar BC5000).
Reflecting the potential impact of the Elf Bar distributor agreement, we have raised our FY24 revenue outlook by 20% to £194.5m, and (adj.) EBITDA outlook by 19% to £25.6m. Our Fair Value increases to 200p/share, indicative of a FY24 EV/EBITDA of 8.7x.
Link to report & audio summary: https://www.equitydevelopment.co.uk/research/strong-fy23-results-backed-by-vaping-acquisitions
Using the same logic as my estimate for FY2023 and FY2024 adding in a further 2% to the 17.5% vaping growth I'd estimated for FY2024 (because my estimate of £43m Vaping revenue in FY2023H2 was actually £44.3m and I extrapolated the 35% FY2023 growth reduced by half to arrive at 17.5%)
1/ Batteries: - assuming static Y-O-Y
FY2023 Revenue £39.5m and GM of £3.9m
FY2024 Revenue £39.5m and GM of £3.9m
2/ Lighting: Suzanne spoke to a recovery of 15% growth on Pox Markets today - see: NB: replace Pox with a V (https://www.poxmarkets.co.uk/articles/new-supreme-s-bargain-brands-continue-to-drive-strong-growth-5c5d19a)
15% growth YOY is well behind the historic FY2022 (by about 30%) but I'm assuming it does not grow back this year as SUP said today it will be in FY2024 and FY2025.
FY2023 Revenue £15.4m and GM of £4.1m
FY2024 Revenue £17.7m and GM of £4.7m
3/ VAPING: based on 19.5% growth to FY2023H2's run rate.
FY2023 Revenue £76.1m and GM of £28m
FY2024 Revenue £106m and GM of £40.2m.
4/ Sports – improvements to margins were spoken of today, and the rebrand of Sci-Mx, it’s clear SUP are focused on driving growth here in FY2024. Assuming 15% growth and also a slightly higher margin (due to Whey prices reverting) - potentially this segment could be much higher in FY24, and there was a strong suggestion that an acquisition in this segment is likely too - no numbers are included here for that possibility.
FY23 Revenue £16.8m and GM of £2.6m
FY24 Revenue £20m and GM of £4m
5/ Other - YOY static.
FY23 Revenue £7.8m and GM of £0.9m
FY24 Revenue £7.8m and GM of £0.9m
6/ 6th Line – ElfBar/LostMary distribution - to be reported separately
FY23 Revenue and GM of Zero
FY24 Revenue £25m and GM of £2m
7/ Admin Costs = £18.7m. I’ve used the FY23 figure of £21.5m less the one off costs of £2.8m.
Conclusion:
My new estimate of GM (adding the above) for FY24 is £55.7m (FY23 was £39.6m GM)
And new estimate of adj. EBITDA for FY24 is £37m. (FY23 was £19.4m adj. EBITDA)
This is much higher than ED’s adj. EBITDA estimate of FY24 of £22.6m + “at least” £1m announced by Supreme today + £2m ElfBar = £26.6m. But we have seen caution in Equity Development's assessments for example in their FY2023 estimate versus today's actual, so I dare say they will catch up with new analysis closer to mine, at some point.
A £37m EBITDA would equate to a 4.5%-5% yield in FY2024 (50%-66% YOY growth in dividend) based on the 25% of net profit pay out. So in 2 years since they cut the dividend from 50% to 25% to achieve faster dividend growth they're almost back to the same dividend as FY2022!
FCF x 10 suggests a target price of 170p; EBITDA x 6 suggests a target price of 188p. Whichever metric you look at, despite a small jump today in SP this remains incredibly cheap and attractive in my view.
GLA
Thanks for your posts. Very useful.
Today's update shows even my more optimistic estimates were short of reality. The forward FY2024 estimates from SUP are about 10% higher (@£20.4m) than my previous estimates (except they've recognised the £4m sale of assets in FY2023). Tomorrow's presentation will be very interesting indeed.
Ignore me. It is 25% EPS. Guess I expected more 😂
Some great results.... Shame the divi wasn't bigger - Have they moved away from the 25% EPS distribution now?
We know the results will be excellent, I’m more interesting in the forward trading updates that will be shared in the FY publications. I’ve a logical prediction that following the trends these will also becc c excellent. Of course we are in the closed period until Thursday 5th July but expecting very good news and a re-rating of 110p to 115p. Great time for a stealthy top up right now, although it’s a bit disappointing the the MM’s have increased the spread so the buy price is a little higher indicating they don’t have much spare stock on their books.
*** Sign up at the link below ***
Supreme (AIM:SUP), a leading manufacturer, supplier and brand owner of fast-moving consumer products, will be conducting an Investor Presentation covering its results for the year ended 31 March 2023.
Sandy Chadha (CEO) and Suzanne Smith (CFO) will be hosting the online event at 11.00 a.m. on Thursday 6 July.
The event is open to all existing and potential shareholders. Questions can be submitted during the presentation and will be addressed at the end.
You can register for the event here: https://www.equitydevelopment.co.uk/news-and-events/supreme-investor-presentation-6july2023
Of course if I am right about the anomalous cash flow, and margins have shifted favourably to reduce FY2023 COGS from £109.7m to £100.7m, then this feeds straight through to adj. EBITDA. Given that ED on the 18th April predicted an out turn of £15.6m adj.EBITDA for FY2023, while the RNS 17th April suggests AT LEAST £19.3m, that suggest's ED's model of applying a 35% increase of costs appears simply wrong. It would be reasonable to think this margin improvement could feed into FY2024. If it did a pro rata £9m saving in FY2023 grows to around £10m in FY2024:
With the Cherry on top of £3.8m other income for T-juice IP sale to LVP we could be looking at adj. EBITDA FY2024 of £18.5m adj EBITDA+£10m even more adjusted+£3.8m cherry = £32.3m
Putting SUP of a forward PE of 3.7 and earnings per share of 27p. Even with the reduced dividend policy of 25% that's 6.7p or 6.5% yield at today's market price.
We'll know for sure in around 2 weeks when full year results are out.
GLA
Bull, I think I found your arguments further down. Considering your points 1-5:
1. Completely agree on doubling to look at run rate for FY2024. My calcs are £150m+ less £64.6m H1 = £85.4m+ H2 revenue. So run rate of £170.8m+
I've further analysed the H1 & H2 vaping which is disclosed in the update. £75m-£31.8m H1 = £43m H2 vaping revenue.
So this is a 35% increase H1->H2 following a 47% increase H2 FY2022 -> H1 FY2023.
Extrapolating forward given the news from continued UK gov't support, success in the marketplace with new flavours and combinations, as well as the agreement with La Vape (LVP) worth £2.5m+ I find it very hard to agree with ED's paltry 7.5% growth in FY2024. Very hard. But in the interests of prudence let's say the growth is "only" half of what we saw in H2 (i.e. half of 35%). £43mx2+17.5% £101m and GM of £38m to arrive at (Lighting £5.9m, Wellness £2.6m, Battery £4.3m, HH £0.9m) = £51.7m GM or a post Op-Ex adjusted EBITDA of £18.5m. So bull, our models are are broadly in agreement.(but see the Cherry below)
2. COGS & Op Ex - in my view FY2024 will be a tale of two halves. The move happens in a week. There'll be a few months of settling in. So FY2024 H1 will be impacted both in double costs and in settling in. FY2024 H2 we will see a marked improvement via synergies and capacity. ED predict +£6.5m for FY2024 and an improvement in adjusted EBITDA margin of 0.5% (10.1% to 10.6%). Given that SUP are laser-focused on cost control it would've been nice to see a forecast for FY2024 H1 and another for H2 because this extra cost feels "extraordinary" and as you say due to short-term factors. But see point 4 below.
3. D&A - disagree, you can't 'exceptionalise', you do have to following accountancy rules to amortise over the expected lifetime.
4. My interpretation is cash is neutral to debt as at 31/3/23. As at 30/09/22 it was cash £5.4m and "borrows" (as Suzanne puts it) at £18.3m so net = -£12.9m. So yes £12.9m of cash flow. But by debt they aren't including deferred & contingent consideration which is £5m. So a broker showing £3.4m suggests 1/3 of the deferred has also been paid (i.e. cash flow must actually be £14.3m for the 6 month period). Considering that operational cash flow was £4.8m in H1 FY2023 a more than doubling of cash flow suggests "AT LEAST" £150m of revenue for FY2023 might be a little conservative (and therefore a run rate of £170m would be too). Or more likely COGS is lower by around £9m and gross margins are higher than forecast. (Admin costs tend to be fixed). Interesting that COGS was £46.5m in H1 and ED think it will be £63.2 in H2 FY2023? They've multiplied H1's COGS by 35% (by av.revenue) but cash flow suggests that COGS is too high.
5. Interest costs 2024 and 2025 - covered this with your A,B,C,
Cherry on top? There's £3.8m other income for T-juice IP sale to LVP which will be recognised in FY2024. So adj. EBITDA FY2024 I estimate at £18.5m+£3.8m = £22.3m
Bull,
I've been worked through your points A, B and C on why you think SUP has "poor guiding":
A: When you say "see my arguments here and on another bulletin board" could you elaborate on what your arguments are?! If you've posted something to another bulletin board and don't want to retype it, I encourage you to investigate a useful function called copy and another called paste.
B: Interest Cost Forecasts: Looking at ED's brokers note they forecast zero for interest paid for FY23 H2 and for FY24. When you say "brokers haven't cut interest cost forecasts" - what cut to zero were you expecting? That doesn't make any sense?
C: Amortisation - I'm looking at Equity Development's forecast published 17th April and the £0.5m adjustment is there in their numbers. You mention 2 brokers who don't do this, but don't include who these are. The only 2 brokers who appear to be following (according to Research Tree) are ED as above and Hybridian who provide copy and paste the RNS analysis - i.e. no analysis. Again I can't see any factual basis that amortisation isn't being considered.
I do believe SUP has a bright future ahead but I am struggling to follow your logic, Bull.
Can’t see any barriers to stop us returning to our high of 245p over the next 12 months. The 5 warehouses consolidated into one huge unit with capacity will reduce the operational costs significantly as well driving up EBIT.