Super Retail Group Financial Analysis

This assignment presents a detailed financial analysis of Super Retail Group Limited. It examines key performance indicators such as revenue growth, cash flow, earnings per share (EPS), and stakeholder risks. The analysis suggests potential avenues for expansion and capital structure optimization. It utilizes publicly available data from sources like Bloomberg, Morningstar, and Super Retail Group's annual reports to support its findings.

Corporate Finance
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Part 1
Executive Summary
This report is prepared for providing an insight into the financial performance of Super
retail group through analyzing its capital structure. The company conducts its operations in the
retail sector of Australia. Also, it demonstrates the comparison of the financial performance of
the company with its industry peers such as JB Hi-Fi and Myer that are also recognized as major
players in the Australian retail sector. The comparison is carried out for examining the leverage
policy of Super Retail Group. The leverage policies of Super retail group (SUL) are discussed
with the application of trade-off theories such as agency and stakeholder theory. It has been find
out from the overall analysis carried out in the report that SUL should increases its debt structure
in its capital structure. In this context, the company is recommended to incorporate the use of
bank loans, bonds in order to increases its leverage.
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Contents
Part 1................................................................................................................................................2
Executive Summary.........................................................................................................................2
Overview of Company and Industry................................................................................................4
Company Overview.........................................................................................................................4
Industry Overview...........................................................................................................................4
Part B: Optimal Leverage Analysis.................................................................................................6
Profitability position of the company..............................................................................................6
Uncertainty of the operating income...............................................................................................9
Growth Opportunities....................................................................................................................10
Type of Assets...............................................................................................................................11
Agency Theory..............................................................................................................................13
Stakeholders Theory......................................................................................................................14
Recommendations and conclusion................................................................................................15
References......................................................................................................................................16
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Overview of Company and Industry
Company Overview
` The Super Retail Group is recognized as one of the top-most retailer company of
Australia listed on ASC (Australian Stock Exchange). The company carried out its business
operations mainly in Australia, New Zealand and China. The company was established in the
year 2004 and is presently believed to have about 600 stores with an annual turnover of about
$2billion. The company has achieved a good brand image in the customer minds through
providing them innovative products and developing an integrated multi-channel customer offer.
The company owns various brands such as Amart Sports, BCF, and Goldcross cycles, Rays,
Rebel and Supercheap Auto. The main products offered by the different brands of the company
are automotive parts, batteries, car care products, lighting and electrical products, seat covers,
paints, oils, additives and many others. The company has achieved a distinctive image in the
highly competitive retail sector of Australia through developing new and unique products and
service for its customers. The company aims to develop an adequate understanding of the needs
and demands of customers for meeting their expectations properly. The SUL is also presently
emphasizing on expanding its business operations on a global platform for achieving an
international growth and presence. The development of an integrated supply chain system is
enabling the company to develop best products in retail sector that possess characteristics as per
customer demands (Company Overview of Super Retail Group Limited, 2017).
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Industry Overview
The Australian retail industry is presently in a phase of positive growth with increase in
the industry turnover over the past few years. The retail sector has recorded a growth of about
3% in the year 2016 as compared to the previous year turnover. The positive growth realized by
the sector is mainly due to introduction of online retailing platform that is helping the companies
to meet customer expectations in short span of time. This is encouraging the retailers to increase
the investment in multichannel stores such as digital presence for improving their profits. As
such, the retails sector in Australia is expected to record an increase of CAGR of 3% in the
coming period of time driven by the growth in internet retailing. In addition to this, the reduction
in interest rates and increase in purchasing power of consumers are further supporting the growth
of the retail industry of country (Zhang, 2013).
The retail industry of Australia is also highly competitive and thus Super retail group
faces stiff competition from other dominant players in the market such as JB Hi-Fi and Myer. JB
Hi-Fi is a recognized retail player of Australia specialized in providing home appliance, video
games, DVDs and other electrical products to the country’s population. The company ahs
presently recorded an increase in its sales of about 23.6 and rise in profit by 31.7 per cent and
thus providing a stiff competition to other players such as SUL. The steady growth approach and
good customers service of JB Hi-Fi is helping it to achieve superior results than its competitors
(The Australian, 2017). On the other hand, Myer Holdings Limited is also recognized as one of
leading department stores in Australia. The development of Omni-channel capabilities and
incorporating a flexible in-store labor structure is helping Myer to boost its sales and
productivity. The Myer has planned to raise about $221 million from the capital markets in order
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to support its growth plan and thus achieving the customer satisfaction by providing those
innovative products and services (New Myer’ strategy revealed, 2015).
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Part B: Optimal Leverage Analysis
In this part, the chosen company has been evaluated on various grounds that help to
evaluate the capital structure of the company.
Profitability position of the company
Profitability means earning capabilities of the company through using their capital
resources. There are many ways to look for the profitability position of any company but best
way is to calculate the profitability ratios and have detailed analysis of such ratios. Some of the
important profitability ratios of the Super Retail Group are as under:
Net Profit Ratio
Formula Net Profit/Net Revenue
In million AUD$
Financial Data 2016 2015
Net Profit $ 58.00 $ 76.90
Net Revenue $ 2,422.20 $ 2,238.70
Net Profit Ratio 2.39% 3.44%
(Super Retail Group, 2014)
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2016 2015
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
2.39%
3.44%
Net Profit Ratio
Percentage
Return on Assets
Formula Net Profit/Total Assets
In million AUD$
Financial Data 2016 2015
Net Profit $ 58.00 $ 76.90
Total Assets $ 1,569.50 $ 1,583.10
Return on Assets Ratio 3.70% 4.86%
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2016 2015
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
3.70%
4.86%
Return on Assets Ratio
Percentage
Return on Equity
Formula Net Profit/Shareholder's Equity
In million AUD$
Financial Data 2016 2015
Net Profit $ 58.00 $ 76.90
Shareholder's Equity $ 734.00 $ 765.30
Return on Equity Ratio 7.90% 10.05%
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2016 2015
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
7.90%
10.05%
Return on Equity Ratio
Percentage
Uncertainty of the operating income
In the economic market which is adversely impacted by different factors of the
economics it is very hard to have optimal earnings throughout the period. There always a risk
factor that changes the position of operating income and it mainly depends upon the beta factor
and market conditions. In Australia, retail market is not growing at the expected growth rate and
there is high risk of uncertainty of operating income earned by the company (Brusov, 2015).
The beta of the company is 1.46 that shows that company is highly volatile to the market
conditions. Volatile means there will change in operating income as the market changes the
position. So there will be financial distress and high market risk position in case of Super Retail
Group (Reuters, 2017).
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Growth Opportunities
Growth totally depends on the earnings capacity and market volatile conditions. Price
earnings ratio is the best factor to measure growth of the company. Price earnings average of the
company in last 5 years is 20.30 %. That indicates that company has good price to earnings ratio
but there is need to check the past year average of growth in revenue and profits of the company,
so that proper analysis can be made.
Price Earnings ratio of the Super Retail Company
(Source: http://financials.morningstar.com/valuation/price-ratio.html?
t=SUL&region=aus&culture=en-US )
Average Growth in Revenue and profits
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(Source: http://financials.morningstar.com/ratios/r.html?t=SUL&region=aus&culture=en-US )
Through looking at the company highest PE ratio was in year 2016 which is 32.8 that indicates
that company is on the path of growth and it can also be seen from the average 10 year revenue
growth which is 16.50 in year 2016 (Super Retail Group, 2014).
Type of Assets
Retail companies mainly posses more current assets as compare to the fixed assets. But as
the value of fixed assets much higher than the value of inventory and other such items, it
outrights the value of current assets. In non-current assets company can have tangible fixed
assets and intangible assets. Tangible assets can differentiated as property, plant and equipments
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and intangible assets can be categories as goodwill, patents right etc (Constantinide, Harris, and
Stulz, 2003).
In order to determine the type of each asset category PPE to non-current asset is
calculated.
Years Current Assets PPE Intangible assets Total Assets
2013 $ 517.00 $ 193.00 $ 770.00 $ 1,480.00
2014 $ 555.00 $ 198.00 $ 822.00 $ 1,575.00
2015 $ 558.00 $ 224.00 $ 801.00 $ 1,583.00
2016 $ 560.00 $ 237.00 $ 773.00 $ 1,570.00
2017 $ 544.00 $ 265.00 $ 750.00 $ 1,559.00
(Super Retail Group, 2014)
Years Current Assets PPE Intangible assets
2013 34.93% 13.04% 52.03%
2014 35.24% 12.57% 52.19%
2015 35.25% 14.15% 50.60%
2016 35.67% 15.10% 49.24%
2017 34.89% 17.00% 48.11%
(Morning Star, 2017)
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2013 2014 2015 2016 2017
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Type of Assets
Percentage
It can be said that company have maximum amount of intangible assets as compare to
other types of assets. The level of PPE assets is very low in very year in percentage to total
assets.
Agency Theory
Every company depends upon the directors and management to run the business more
effectively. These persons are regarded as the agents of the company as they work for the
owners. Owners of the company are the stakeholders and they appoint such directors and other
management personal to have better profitability of the company (Brigham and Ehrhardt, 2007).
The relationship between the principal (Shareholders) and agent (Managers) must be in align to
the business interest in order to have better growth of the company and to keep the capital
position strong. It can be seen from the annual report of the company of year 2016 that as the
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remuneration of the management increases the EPS of the company increases till year 2013 but
after that there is decrease in EPS but remuneration remains the same (Morning Star, 2017).
(Source: http://media.supercheapauto.com.au/corp/files/documents/SRG_AnnualReport20.pdf )
Stakeholders Theory
According to this theory there is must be optimal interest of the stakeholders of the
company and their values and beliefs must be kept on priority. Stakeholders can be customers,
suppliers, creditors, employees, government and society. All these sections bear some sort of risk
while they are connected with the company. So it is important to minimize their risk to minimum
level.
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There is increase in revenue from year 2013 to 2016 that indicates that their increase in
earning capacity of the company. Cash flows to suppliers are going perfectly and on time that
shows suppliers have very less risk. EPS is increasing that shows shareholders are getting proper
return of their investments (Marks, 2005).
Recommendations and conclusion
It is suggested to the management of the company that they should expand the company
business and should source the capital through debt finance in order to have tax shields and to
get have rapid growth in business.
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References
Brigham, E. and Ehrhardt, M. 2007. Financial Management: Theory & Practice. Cengage
Learning.
Brusov, P. et al. 2015. Modern Corporate Finance, Investments and Taxation. Springer.
Company Overview of Super Retail Group Limited. 2017. [Online]. Available at:
https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=5647527 [Accessed
on: 6 October 2017].
Constantinides, G.M.., Harris, M and Stulz, R.M. 2003. Handbook of the Economics of Finance:
Corporate Finance. Elsevier.
Marks, K.H. 2005. The Handbook of Financing Growth: Strategies and Capital Structure. John
Wiley & Sons.
Morning Star. 2017. Super Retail Group Ltd SUL. [Online]. Available on:
http://financials.morningstar.com/income-statement/is.html?t=SUL&region=aus&culture=en-US
[Accessed on: 7 October, 2017].
New Myer’ strategy revealed. 2015. [Online]. Available at:
https://www.insideretail.com.au/blog/2015/09/01/new-myer-strategy-revealed/ [Accessed on: 6
October 2017].
Reuters. 2017. Super Retail Group Ltd (SUL.AX). [Online]. Available on:
https://www.reuters.com/finance/stocks/overview/SUL.AX [Accessed on: 7 October, 2017].
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Super Retail Group. 2014. Annual Report. . [Online]. Available at:
http://www.annualreports.com/HostedData/AnnualReportArchive/S/ASX_SUL_2014.pdf
[Accessed on: 6 October 2017].
The Australian. 2017. JB Hi-Fi keeps bucking retail trends with outstanding results. [Online].
Available at: http://www.theaustralian.com.au/business/opinion/stephen-bartholomeusz/jb-hifi-
keeps-bucking-retail-trends-with-outstanding-results/news-story/
1c457bd2fe94fafd4b60e862ee5c21bb [Accessed on: 6 October 2017].
Zhang, Z. 2013. Finance – Fundamental Problems and Solutions. Springer Science & Business
Media.
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