Resilient and generating cash
In a Trading Update for the six months to 30 September, Supreme reports that Group performance remains in line with market expectations for the full year, reiterating the positive message of the 15th September AGM.In particular, the Vaping division, which we estimate to comprise 46% of FY23 revenue and 71% of FY23 gross profit, is reported to have continued on a strong growth trajectory, with organic growth boosted by the acquisition of Liberty Flights, and latterly, Cuts Ice Ltd., and Flavour Core Ltd.
Notwithstanding the headwinds buffeting the UK political and economic outlook, this is a positive Trading Update. Supreme occupies a market niche which emphasises value for money in its product lines whilst representing a positive alternative to the threats to health represented by cigarette smoking - as backed by the government’s Smokefree 2030 initiative.
Based on our outlook, Supreme currently trades on a FY23E EV/EBITDA of 4.6x and offers a yield of 6.4%. We include a valuation update based on sector-specific peers in the Distribution, Consumer Staples and Tobacco markets cross-referenced against the relevant divisional contributions to Supreme’s gross profits. Our Fair Value remains 190p/share.
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