Super Group

DMG & PARTNERS RESEARCH on 20 June 2012

SINCE our upgrade to "buy" in February 2012, Super's share price had returned +42 per cent to close at all-time highs of $2.21 recently. This translates to a blended FY12-13F 17 times price-to-earnings ratio (P/E), suggesting limited room for near-term upside.

We see some headwinds from higher Robusta coffee bean prices that averaged about US$2,125/tonne in May, which lifted the year's average to about US$2,000/tonne.

We factor in potentially higher raw material costs for Q3 2012 production and revised down our FY2012-2013 estimates by 4 per cent, and 3 per cent respectively.

We continue to like Super for its dominant position in South-east Asia's instant coffee market, brand-building efforts and strong cash flow generative characteristics, but reason its risk-reward trade-off is fair at current levels. We are now "neutral" at a lower target price of $2.12 (previously $2.18), pegged to 15 times blended FY13-14F P/E.

Spike in Robusta bean prices in May: Coffee bean prices peaked above US$2,200/tonne in May and have since softened.

We estimate Q3 2012 input costs to be about US$2,100/tonne, which is higher than about US$1,900/tonne for Q1 2012.

Sugar prices were softer at about US$560/tonne and palm oil prices were stable at about US$1,000/tonne in May (YTD12: US$605 and US$1,020 respectively).

Fine-tuning estimates. In view of recent spike in Robusta bean prices, we fine-tune our FY12 earnings estimates down by 4 per cent to $68 million, and now expect Q2-Q4 2012 quarterly earnings to grow slightly slower at 19 per cent-74 per cent-41 per cent year-on-year to $16 million-$16 million-$19 million (previously $16 million-$18 million-$19 million) respectively.

Key risks: Upside potential to our "neutral" call includes better margins from an improved product mix and higher dividend payout ratios. Downside risks include sharp spike in input prices, ie Robusta coffee beans, palm oil and sugar.
NEUTRAL