UBS starts Superdry at 'neutral', says stock looks fair value

It noted that Superdry's price-to-earnings has contracted from 16x to 7.5x year-to-date as decelerating group sales growth, from 22% per annum to 2% in FY19E, has sparked debate over the company's growth potential. After adjusting for growth and returns, the shares now appear fairly valued relative to European apparel peers.

"The longer-term drivers for Superdry are clear to us, namely: (1) a strong brand (confirmed by UBS Evidence Lab UK consumer survey results); (2) range extension opportunities; and (3) plenty of market share to go for internationally," UBS said.

However, as Superdry works through its product imbalances, it expects a moderation in sales growth to 4% FY18-22 compound annual growth rate and limited upside risk to the market's mid-term growth expectations.

UBS said Superdry is on the cusp of delivering some important product developments and once complete, these will position the brand well for future growth. However, the bank's case study analysis of four more established brands shows the challenges for Superdry are that customer perceptions take time to change and execution risks are high against a backdrop of volatile industry demand.

"As management executes against its product strategy over the next 12-18 months, we see limited scope for earnings upgrades," it said.

At 1145 GMT, the shares were down 2.5% to 438.92p.