The £1.2bn UK vaping sector is under siege, despite overwhelming medical evidence that tobacco free products helped smokers quit.
The fears are two-fold. Firstly that the industry could get children hooked on nicotine. And secondly that disposable vapes create tons of litter and electronic waste.
However there is a sensible middle ground, which can resolve the concerns and achieve the best of both worlds.
In fact, Supreme plc (SUP) (Mrkcap £126m at 107.5p) - a UK affordable FMCG products group serving the Vaping, Batteries, Lighting, Wellness and Sports Nutrition sectors - is already pioneering such an approach.
Adopting best-in-class protocols to stamp out underage vaping (e.g. ID verification), whilst equally leading the industry towards a more sustainable future. For instance, next month SUP plans to extend its own reusable range by launching a rechargeable 88Vape pod system.
In addition, Supreme today unveiled a series of further initiatives to crack down on underage use, shift towards plainer packaging, introduce extra point of sale checks, distribute age-appropriate flavours, and roll out recyclable bins for single use devices.
CEO Sandy Chadha commenting: "We are fully committed to eradicating underage vaping so that the industry can get back to its core objective. To support adult smokers to find an affordable, sustainable, safer alternative to smoking. Whilst we believe flavoured vapes are a critical part of many ex-smokers ‘quitting journey’ as they seek to replace that tobacco taste for something more palatable, we are also desperate to ensure that those flavours do not spark any interest in younger people."
"We are fully supportive of any legislation and are more than happy to begin to transition our business by removing or changing anything from within our product set that could be deemed compromising."
But that’s not all.
These new measures are NOT expected to impact FY '24 results (y/e March). Indeed in a separate release, SUP said that it was "delighted with H1 performance (re adjusted EBITDA up 85% to £15.0m on sales 48% higher YoY to £100m) and continues to trade in line with FY '24 consensus" (re £28-30m adj EBITDA).
Here its recent Elf distribution agreement has exceeded expectations and contributed to around half of the reported H1 growth. The remainder comes from SUP's other categories that have all posted revenue and gross profit growth, as more consumers opt for its value conscious brands.
So what does this all mean?
Well for investors, the stock at 107.5p trades on attractive FY '24 PER, EBIT & EBITDA multiples of 7.3x, 5.1x and 4.2x based Equity Development’s estimates of £29.0m and 14.8p in adjusted EBITDA & EPS on £200m of turnover – alongside paying a 3.7p dividend (3.4% yield) with an unchanged 200p valuation.
Lastly as a sign of confidence, Sandy Chadha (57.34% holder) purchased 390,000 shares two weeks ago at an average price of 124p (cost £484k).
Watch out for interims on Tuesday 28 Nov '23.
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