Supreme lives up to its name as it delivers higher guidance

Affordable consumer products group Supreme (SUP) has lived up to its name with a better than expected trading update. After delivering strong year-to-date 2024 numbers thanks to new distribution agreements for 3rd party products Elfbar/Lost Mary, and more consumers opting for its value-conscious brands, economies of scale and margin expansion, the board has upgraded FY24 revenue and adjusted EBITDA guidance. 

It now expects to generate sales of between £195m-£205m - up +28.6% from last year's £155.6m at the midpoint - and
EBITDA of £28m-£30m, up +49.5% on last year. The latter is at least 13% higher than previous consensus estimates of £25.6m on sales of £193.5m.

The update also reiterated Supreme's commitment ito adopting best-in-class protocols to stamp out underage vaping - including age verification and retailer spot checks - and lead the industry towards a more sustainable future by tackling disposable vapes. Specifically, the business plans to extend its own re-usable range by launching a new rechargeable 88Vape pod system in November that will be more environmentally friendly. 

But that’s not all. Tight working capital management to support the Elf brand has delivered robust cashflow generation, which should translate into higher year-end net funds of around £0.5m, excluding IFRS16 leases.

All told, that means at 99p the stock trades on compelling FY24 PER, EBIT, and EBITDA multiples of 6.3x, 4.5x, and 4.0x, respectively, based on my upgraded forecasts of £29.0m and15.6p in adjusted EBITDA & EPS on revenues of £200m. The shares also offer an attractive 5.3% dividend yield, 3x covered, further supporting an increased valuation of 210p a share, up from 195p previously.

Chairman Paul McDonald commented: “Following record profitable growth in H1, the Company now expects trading for FY’24 to be significantly ahead of market expectations. The continued expansion of our Vaping category remains a key growth driver for Supreme PLC, where we continue to attract significant demand from key retailers, particularly for our 88Vape brand.”