Market Report: Bears charge in on news of Supergroup voucher
Tuesday 07 June 2011
Supergroup continued to slump yesterday amid fears that the retailer behind the Superdry brand might be losing its edge with customers.
The worries first surfaced on Friday, when traders learnt that in a break from past practice, the group had sent discount vouchers to online shoppers. They were invited to print off the promotion and claim 20 per cent off their in-store purchases over the weekend.
Cue frenzied speculation about the trigger for the change in policy. Was the brand losing steam? Was it sitting on cartons of unsold stock? Although there was nothing new to suggest that any of these fears were justified – and while brokers did their best to halt the share price slide – the stock fell on Friday, and then again yesterday, when it closed at 969p, down 68p.
All this despite analysts at Seymour Pierce, Numis and Arden Partners reiterating their respective "buy" recommendations. Arden's Nick Bubb added that – contrary to the Chinese whispers sweeping the market – the company was not offering discounts to everyone, while Numis said the share price slide was "extraordinary".
Numis urged investors to take another look at the stock, not least in light of the upcoming investor presentation. "With sentiment on the stock now very negative, an analyst [and] investor day on the way in June set to put some flesh on the bones of the growth story, and the shares down [around] 40 per cent from the peak in February, we believe investors should, cautiously, be taking a fresh look," it explained.
Overall, the markets were broadly flat. There was little in the way of economic news to drive stocks in one direction or the other, while the gains were capped by the hangover left by the slew of reports spotlighting the fragile nature of the recovery both here and across the Atlantic. To add to the uninspiring backdrop, there was also little in the way of big corporate announcements, leaving the FTSE 100 at 5,863.2, up 8.2 points, and the FTSE 250 at 11,996.9, up 24 points.
IMI was among the standout performers of the session, rallying by 17p to 1,038p after Citigroup stepped in with some words of support. The broker said the firm was its top pick in the UK engineering sector, with ample scope to expand its margins.
"With IMI already having achieved new peak operating margins in 2010, we believe that there was a degree of scepticism over continuing margin expansion," the broker explained, raising its target for the stock to 1,350p.
"However, we view the targets [of over 20 per cent] in the Fluid Controls businesses as very achievable and are now forecasting [that] they are met by 2013. Despite forecasting a much more limited margin expansion in the Retail Dispense businesses, this still sees our group margin forecast rise to 19.8 per cent in 2013."
On the downside, International Airlines, the group formed by the merger of British Airways and Iberia, was 7.1p lower at 229.6p after the International Air Transport Association (Iata) more than halved its forecast for industry profits in 2011. Iata now expects $4bn (£2.4bn) in profits this year, compared to $8.6bn previously, blaming high oil prices along with the earthquake in Japan, and unrest in the Middle East and North Africa.
"That we are making any money at all in a year with this combination of unprecedented shocks is a result of a very fragile balance ... But with a dismal 0.7 per cent margin, there is little buffer left against further shocks," Iata's director general Giovanni Bisignani said.
Further afield, Hochschild Mining, which has extensive operations in Peru, was pressured amid concerns about the results of the Peruvian general election.
The left wing credentials of president-elect Ollanta Humala triggered worries about an expansion of the state's role in key industries such as oil and mining, sending the Hochschild share price down by nearly 9 per cent or 46.5p to 500p last night.
The price comparison website operator Moneysupermarket.com was in focus, gaining 2.55p to 101.5p, after Numis said: "Forget Groupon, this money-saving website offers a better deal for investors."
The eye-catching claim was accompanied by a run down of the FTSE 250-listed group's strengths relative to the much-lauded US website. "We know that compared to Groupon, this consumer money-saving website is boring," the broker said. "It makes money. It has a proven business model. It generates positive free cash flow and since IPO has returned much of this significant cash generated to shareholders in dividends. It trades on [a forward enterprise multiple of 10 times] and pays a respectable 3.9 per cent divided yield. Yawn!"
Not content with that enthusiastic summary, Numis added: "Why buy Groupon, when you could have moneysupermarket.com, where we believe chances are [that] the long-term shareholder return will be greater?"
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