Superdry crash exceeds 80%, but BAT and Rolls-Royce are in demand

A perfect example of the heart-stopping nature of stockmarkets currently was provided by Superdry. Graeme Evans also comments on BAT and Rolls-Royce.

It's taken less than a year for Superdry shares to plunge from January's record high above 2,100p to less than 371p today. They're now within sight of the all-time low set in June 2012 at 261p. 

Today's unwelcome re-run of last May's profits warning caused the fashion brand to lose a third of its value within an hour of the opening bell, extending losses in 2018 to a stunning 80%.

Plenty of bargain-hunting investors will be rueing their luck, given how attractive this high-yielding, cash-generative stock must have looked in the summer, particularly given its ambitions for further global expansion. It would have been easy to dismiss the spring profits warning as a weather one-off.

Peel Hunt's respected retail analysts said in July that a return to 2,000p was still possible, buoyed by the prospect of further special dividends. Liberum was another supporter with a target price of 1,400p. 

A miserable few months have followed, topped off with today's profits warning as Superdry said unseasonably warm weather had wrecked its two biggest trading months of November and December.

Superdry.  Source: TradingView (*) Past performance is not a guide to future performance

Between 55% and 60% of Superdry's of autumn and winter revenues come from jackets and sweatshirts, which is why chief executive Euan Sutherland has been so keen to overhaul ranges and reduce sensitivity to the weather.

A lack of innovation in some product categories has also hit the business, leading to an £11 million adverse profits impact in November and a warning of a similar situation this month if conditions don't improve.

Profits for the half-year to October 26 were down 49% to £12.9 million, with Superdry now seeing a full-year performance between £55 million and £70 million. That compares with £97 million the previous year.

Sutherland remains determined to fix the "legacy issues", most notably in product mix and range, and to realise expansion opportunities as part of his strategy to create a Global Digital Brand.

But his task is made harder by pressure from co-founder Julian Dunkerton, who has been urging major shareholders to back his return to the business. He stood down as a director in March, having led the group in its 2010 IPO.

The stock has been trading on a price/earnings multiple of 9x, which is still below the level of Ted Baker despite its rival’s own difficulties.

On Friday, Superdry shareholders are due to receive a previously announced special dividend of 20.5p a share amounting to £20.5 million. Today's interim dividend is being held at 9.3p and will be paid on January 25.

While Superdry shareholders have continued to see shares head south, there were some recovery signs for two significant FTSE 100 index stocks today.

Blue-chips fight back

British American Tobacco shares have fallen 41% in the past year and are now trading near a seven-year low. Declining volumes, the threat of regulation in the United States and the emergence of rival vaping products have put paid to tobacco's long run as one of the best performing sectors in the UK.

British American Tobacco weekly chart.   Source: TradingView (*) Past performance is not a guide to future performance

Shares are now at 2,769p, highlighting what a good call it was by fund manager Neil Woodford to dump BAT shares at £50 in 2017. But the maker of brands including Dunhill and Lucky Strike was 2% higher today as it said it remains on track to beat its target for high single-digit growth in adjusted earnings per share.

There was also a relief rally for shares in Rolls-Royce after the engines giant reaffirmed guidance for 2018. Significantly from an investor viewpoint, free cash flow will be in the region of £450 million. 

The achievement of this figure will be vital for sustaining investment in R&D programmes, as well as keeping shareholders onside through progressive dividend payments.

CEO Warren East hopes to get this figure up to £1 billion by 2020, compared with the paltry £100 million achieved during the company's dark days in 2016. That was the year the dividend was cut for the first time in 24 years and Rolls racked up a record loss of £4.6 billion.

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.