Berenberg initiates coverage on Supreme at 'buy'

Analysts at Berenberg initiated coverage on batteries and lightbulbs distributor Supreme at 'buy' on Tuesday, stating the group was "supremely well positioned".

Berenberg said Supreme, which owns, licenses and distributes a variety of consumer brands, has repeatedly expanded into new product categories for more than a decade and had become "a key supplier" for customers like B&M and local convenience stores.

The German bank also highlighted that Supreme now boasts the largest vaping brand in the UK, and noted that it was continuing to "add strings to its bow", with recent entries into the sports nutrition, vitamin and household product markets.

"With the shares offering a 3.6% dividend yield and double-digit earnings growth, we think they remain good value," said Berenberg, which slapped the stock with a 220.0p target price.

Berenberg also stated that Supreme generates "outstanding" returns on invested capital, 59% in 2020 and still trending upwards, due to the asset-light nature of its distribution business and the efficiency with which it has set up its own manufacturing capabilities in vaping and sports nutrition.

Lastly, the analysts acknowledged that the group was also "highly cash-generative", with little capital investment required to support its continued growth over the coming years.