Supreme reports record financial performance in FY24
'Buy on the sound of cannons' has proven to be a successful investment strategy - especially in those stocks that could benefit from longer-term demand shifts.
Take for instance the vaping industry, which has been under attack from the media. The good news is that tighter new laws (eg underage) and taxes are being introduced that should hopefully draw a line under most of these negative headlines.
If I'm right, then one stock which should handsomely re-rate when the skies clear is UK FMCG products firm (mrkcap £146m at 125p) - an owner (eg 88Vape), licenser (eg Elfbar) and distributor of Vaping, Sports and Nutrition (eg Sci-MX & Sealions), Batteries and Lighting brands.
In fact, in today's Mar'24 y/e trading update, the company said that it had generated "record" results that were 'in line' with previously upgraded expectations. almost doubled adjusted EBITDA to £38.0m (vs £19.4m LY) on revenues 44% higher at £225m (£155.6m LY) thanks to organic growth "across all divisions" - alongside ending Mar'24 debt free (excl IFRS16 leases).
Elsewhere, the business continues to invest in its rechargeable pod system ahead of the UK's ban on disposables, which is scheduled to come into force sometime in early 2025. These reusable devices should generate higher gross margins, reflecting their 'razor, razor-blade model'.
On top, the Board "remains confident of prospects" and is "exploring" synergistic M&A deals to further diversify and scale this agile and rapidly expanding group.
Lastly, in terms of upside potential - joint house broker Zeus Capital estimates FY'25 turnover, adjusted EBITDA, EBIT, and EPS of £225.5m, £34.9m, £31.3m, and 18.2p/share respectively, thus putting the stock on attractive PER, EBIT and EBITDA multiples of 6.9x, 4.7x & 4.2x, whilst equally paying a 4.2p dividend (3.4% yield). Likewise, Equity Research have a fair value of 225p/share.
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