SuperGroup tumbles as Liberum recommends taking profits

SuperGroup traded sharply lower after Liberum downgraded the stock to ‘hold’ from ‘buy’, noting that the shares are up 85% since it upgraded them last December.

“With the stock now trading on 24x 2016 earnings, a 50% premium to its long-term average, we downgrade to hold and advise investors to take profits,” it said, adding that in the absence of positive catalysts, it sees more downside risk.

The brokerage said it upgraded forecasts and the target price in May, and again in early November but tough comparators lie ahead and trading conditions across the High Street are deteriorating.

Liberum said first half sales were strong but scope for positive surprises is limited.

It noted that at the time of the H1 update on 5 November, momentum was strong heading into the Christmas trading period.

However, Liberum said momentum can be a fickle thing and the brokerage sees evidence that it may have shifted in the past six weeks.

In its report in early November, Liberum pointed out that competition was increasing and that there might be some excess inventory.

“We find that SuperGroup is having to deal with both. Promotions elsewhere on the High Street are deep, up to 60%; and we see promotional activity, both in store and on line at SuperGroup, not necessarily more than last year, but surprising given the strength of Q2 sales leading into the period.”

“Sales comparators get much tougher in H2 and with 75% of group profits to come from H2 as well we see little room for error.”

Liberum has a 1,500p price target on the stock.

At 0940 GMT, shares were down 8.2% to 1,487p.