The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
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Did everyone get their dividend?
(I think it was meant to be paid on Friday 30/09, but nothing received through Barclays Stockbrokers...)
Today's AGM announcement: "Trading for the current financial year remains in line with market expectations, with the business well-placed to deliver on our strategic aspirations, supported by the recent acquisitions of vaping businesses"
There's the magic words: In Line. Based on my prior estimates where we see an uplift due to the recent acquisitions for about 9 months for y/e 31/3/23. I'm estimating numbers something like this:
Revenue ~£143m
EBITDA ~£23m
EPS ~13.3p
FY2023 PE of 6.7
Too cheap at today's 94p buy price. GLA.
I'd hazard a guess the price drop may have something to do with the possible strike action if pay demands are not met for the 1,900 members of Unite at Felixstowe as Supreme receive all the batteries from China!
Been looking at this share for months and with today's drop for no apparent reason and the imminent divi, decided to get in at 97.2p.
I know the future divi is likely to halve to around 25% of EPS but even so, think the SP ought to recover over the next few months.
I believe these shares go ex div on the 31st August.
hi the real trump card of sup is the new nutrition&wellness business imho. And speaking of cross-selling that business could be linked to vaping, it may seem strange but the two businesses are very close each other..that's what I wish it was at least..
Topped up at 99p.
Was just thinking the same!
Nasty 10% drop this morning on no news that I can discern.
The baby getting thrown out with the bathwater of consumer stocks.
My finger is hovering over the "Add" button.
SUP bought 2 businesses. Here's what I found on the 2nd acquisition:
1. Accounts also 28/2/21
2. Revenue £1.6m, PBT £0.67m (PAT £0.67m too - accumulated losses maybe?)
3. Net assets £0.84m
4. 6.66x valuation inc. assets would be £5.3m. NB 2020 profit was negligible so perhaps £5.3m is too high?
5. If it's correct this ties in with my estimate for Cuts Ice (bought for circa £16.7m + £5.3m for flavour core = £22m vs £25m borrowing facility headroom).
6. Virtually all sales were made to guess who? Yep Cuts Ice. There are loans and a common holding co entity (i.e. 2 companies 1 owner). Therefore I would disagree with the Equity D statement "they work solely on an OEM basis for the e-liquids industry"..... erm bit misleading, better to say they work almost exclusively with Cuts Ice. Maybe £30k on sales to other OEMs.
7. Lease liabilities 2-5 years in Swindon of £300k
8. Not much else to add but I would comment that it makes sense why they did 1 RNS for the 2 acquisitions. It's really all 1 thing when you look at it.
Nice to see we're back above £1 btw!
GLA
Additional factoids reading Equity D's 9th August article:
> Italy and Belgium are mentioned which weren't in the 2021 accounts.
> Equity D think European sales were majority of sales. Unless the mix has completely changed since Feb 2021 (last accounts) then this is incorrect i.e. majority were UK and not EU sales.
> The importance of having an ISO Class-7 cleanroom matches GMP (good manufacturing practice) industry standards, to meet vaping-related Tobacco Products Directive (TPD) and "other regulatory standards" (Agricore > Can't think what other standards these would be?).
> It begs the question of how SUP have managed without a cleanroom until now? It feels like this could unlock new markets and opportunities maybe? Particularly EU sales? TPD is an EU directive from 2014 which was incorporated into UK law: https://www.legislation.gov.uk/eudr/2014/40/contents
This gives a general overview and is relevant to SUP growing focus on vaping (e-cigarettes) but didn't contain anything that I could find to set out clean room standards or anything like that.
https://researchbriefings.files.parliament.uk/documents/CBP-8114/CBP-8114.pdf
That's about it. I'll cover Flavour Core separately.
It seems taking much longer to buy & sell on this script.
Friends any idea why!
Always worth hearing your thoughts.
Hi unhooked, I wrote my piece before reading equity’s new article so I agree with you on the new know how and other points you made. Have they bought 2 businesses? There’s a flavour business too isn’t there? Need to read it properly later
Ignore last sentence.
Also, that the acquisitions "bring e-liquid technical and regulatory compliance knowhow" is a very good thing in my view.
That Equity Development note is confusing.
They say "The acquisitions are... expected to be immediately EBITDA (adj.) earnings enhancing", but then also say "At this stage we leave our existing outlook in place with the proviso to revise at the next earnings update" without giving a reason why.
To me, the fact that the acquisition is being financed out of existing resources with no commensurate cut in the divi, is encouraging.
Then, they also say "The acquisitions are... expected to be immediately EBITDA (adj.) earnings enhancing".
It is extremely concerning to read that Equity Development have published effectively what is a £15m drop in guidance to the forecast turnover they published only 5 weeks ago. I base this from their new report which says the combined revenue of Supreme and Cuts Ice will have no impact on revenue and earnings. I appreciate they say they will "revisit" this at the next update...... is that really good enough?
Cuts Ice generated £10m of revenue in y/e 28/2/21 (latest accounts) but £15m 28/2/20. Given Cuts Ice report significant disruption due to Covid in y/e 2021 (UK and Germany closed vape shops as were deemed non-essential) there was negligible profit however again using the 2020 numbers the PAT was £1.5m. Given the reopening it *SHOULD* be earnings enhancing.
We don't know the purchase price (for now). However £18.6m is my guess (6.66x 2020 earnings plus the net assets of some £8.6m).
Some other factoids about CutsIce:
> Based in Park Royal NW London. Building appears to be a lease expiring in the next 2-5 years.
> Gross Margin 46% (vs SUP 44.7% GM on vaping!)
> Channel Mix: 93% wholesale and 7% retail (presumably online sales?)
> Geographic Mix: UK 48%, EU 48%, ROW 4%
> Germany, France, Spain, Holland are mentioned for countries sales
> Historic stock impairments up to £0.9m (yikes)
> Historic Bad Debt up to £0.2m
> 3rd Party Logistics partner in Netherlands to ensure rapid delivery to EU (avoid red tape)
> Aggressive depreciation policy suggests no hidden losses hidden in FAs
> Headcount of approx 90 people
Conclusion: My take on the limited information is that this will be both revenue accretive and earnings accretive. There are great synergies from a vaping point of view - however the "traditional" model of cross sell and "it's not fair" might be somewhat limited. What I mean by that is that the customer type of Cuts Ices might be more distributors who sell to retailers rather than direct relationships with retailers (as SUP has in the UK and more recently in Ireland). So perhaps the opportunity to cross sell lighting, batteries and so on might be limited?? I might be wrong on this and it is a question to be posed to SUP. There is clearly an 88 Vape and Liberty synergy however.
Plus cost reductions will feature and UK distribution costs particularly can be streamlined.
If the 2020 profit rate can be restored, plus synergies/cost savings of some £1.5m (of £5m per annum), plus synergies for 88Vape then this could mean a £3.5m-£4.5m uplift to earnings.
So on an assumed 6.66x valuation that drops the simple payback could be a highly attractive 2-3 years. Liberty was done on a 7x valuation so I might be slightly below the buy price.
So I'm happy with this announcement and it should be positive for SUP shareholders too. There appears to be no dilution and it is being funded through debt facilities (SUP has a £25m debt facility - so if I am wrong on the purchase price it has to be below £25m and less as that
*** Acquisition of Cuts Ice Limited and Flavour Core Limited ***
Supreme has announced the acquisition of independent vaping products manufacturer Cuts Ice Limited, and Flavour Core Limited, developer of flavours and e-liquids regulatory practices compliance. The acquisitions bring e-liquid technical and regulatory compliance knowhow, plus offering manufacturing synergies and bring additional access to European markets.
The acquisitions are funded from existing resources, where Supreme has proven experience in the integration process, and are expected to be immediately EBITDA (adj.) earnings enhancing, with integration into its Vaping division systems and operations to follow.
The acquisitions bring to Supreme important vape flavourings, scientific and regulatory expertise, and practices to augment the vaping brand and commercial success Supreme has established in the UK. We leave our existing outlook in place for now with the proviso to revise at the next earnings update.
Link to full note: https://www.equitydevelopment.co.uk/research/supreme-plc-acquisition-of-cuts-ice-ltd.-and-flavour-core-ltd
5 vape shops in my area now tells me there is definitely a trend for it, look at younger generation most are vaping now and not smoking .Ethically it’s not right but that’s the way it’s going hence that’s the main reason I bought into this company .
The margins on the liquids are pretty big .
Plus what with the current financial climate will people just give up smoking, I think a lot will turn to vaping to save the £
Yes BAT sell world wide .. most of the growth probably USA also when your comparing
Prices the products are different BAT looks to offer a closed
System 2x2ml for £6.99. 88vape 10ml for £1 bottle
Interestingly it turns out Liberty Flights sells beyond the UK. These distributors cover Japan, Oz and NZ:
https://www.thrvape.co.nz/
https://liberty-flights.shop/
Comparing BAT's product to SUP's product it does appear to me that SUP is 7x cheaper for the same thing: (£6.99 vs £1):
https://www.vuse.com/gb/en/e-liquids/pods/vuse-epod-chilled-mint-nic-salts-e-liquid-pods
https://www.88vape.com/collections/16mg-e-liquid
Has anyone else seen this?
https://www.ii.co.uk/secure/my-news-feed/analysis-commentary/ii-view-vaping-boom-pushes-bats-smoke-free-customers-above-20-million-ii524802
>>>Revenue for alternatives, or what it calls New Categories, rose 45% to £1.28 billion, with customers for its non-combustible products up 2.1 million to 20.4 million. New category brands include Vuse, Vype, Glo and Velo.
Is 88Vape genuinely a fraction of the price of Vuse, Vype, Glo and Velo? If BAT are achieving 45% growth for their non-combustibles then surely SUP is also doing at least that? (Or better??? As we're cheaper?). I'm not a vaper, so it'd be great to get some insight from someone who's a vaping conoisseur!
NB: BAT sells internationally not just to the UK, so a good proportion of these 20.4m people using BAT's products aren't going to be SUP's target market.
just a blip today ,so not to worried......really excited about the vape side of the business as
I suspect that will do really well
Bit of profit taking as expected but have added more as I can see a 30~50% upside on current price short term.
Having a little breather after such a big bounce….B