Superdry a 'buy' on valuation grounds, scope for more

Superdry was upgraded to 'buy' from 'hold' by broker Liberum, with the recent share price fall offering better value.

The shares have fallen 33% over the past 6 months, with the shares on a multiple of 12.2 current full year EPS, very close to its five-year trough rating, with Liberum's forecasts imply a three-year EPS compound annual growth rate of 11.1%.

Cash generation has been negatively impacted by rising inventory levels in recent years as initiatives to improve the supply chain and distribution infrastructure, but the balance sheet is "very strong" with a net cash position and scope for further special dividends

Analysts forecast cash generation to improve over the medium-term. The one-year FCF yield of 4.6% is "not overly attractive", but rises to 7.9% by the third year of forecasts.

Liiberum's upgrade is "largely a valuation call" at this stage, but analysts said "there could be scope to become more positive on the fundamentals. For this, we need greater clarity on earnings momentum – this has slowed from the historic strong double-digit growth rates and visibility is now lower."