Raw material costs hit SuperGroup shares

By Graeme Dickson
Updated: 11:53 EDT, 22 December 2010

The FTSE 100 index rallied 1.1 per cent to 5951 since last Wednesday, a new high for 2010, despite the poor weather hampering British retailing, transport, travel and other industries.

Another dampener on the week was a further downgrade to Irish debt, albeit the market seems to have moved on from this news to look at other issues.

The Santa rally is still on and with many fund managers, traders and private investors putting their feet up for the last few trading days before Christmas; one would assume that the net buying activity is meeting very little selling pressure.

We should now expect the FTSE to hit 6000 and perhaps slightly more before the year is out.

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The most volatile stock in the FTSE 350 over the last week came from fashion retailer SuperGroup (SGP), down 16.5 per cent to close yesterday at 1261p after it cautioned that higher raw material prices could affect its gross margins in fiscal 2012.

Despite this the company announced in its interim results that retail sales climbed to £54.4 million from £31.7 million in the 26 weeks to 31 October while wholesale business leapt 56 per cent to £35.9 million from £23 million.

SuperGroup shares: Took a tumble on raw material costs news

It is also developing its online offering, through local-language sites and said e-commerce sales more than doubled in the first half.

Pre-tax profit climbed to £14.6 million from £7.8 million. The company plans to keep margins under review but expects that it will return to more 'normal' levels by fiscal 2013.

The £1.076 billion company received a couple of buy notes after its results, most notably from Altium Securities with an 1800p price target from 1100p, albeit rival broker Execution slapped a sell note and 1000p price target on Monday.

From where I'm standing, although the warning on margins was not brilliant, it is not as if it should come as a complete surprise to the market after Primark and Next have been shouting from the rooftops that the phenomenon of rising cotton prices was an obstacle facing all clothing retailers.

I think this sell off is just as much to do with fund managers locking-in fantastic returns for the end of the year, after it floated at 500p on 12 March this year, as it is to do with caution going into 2011.

If anything we should start getting cautious as we approach September next year when the directors and certain shareholders are free to sell their substantial shareholding after their lock-in ceases.

There are no company interim or preliminary results scheduled next week, given the 'dead' week between Christmas and New Year, so it is likely to be very quiet with just 2.5 days of trading over that period.

Highlights from FTSE 350 stocks last week include:

• Ashtead (AHT), the construction equipment rental company gained 5.5 per cent to 166p on rumours that it may acquire power rental business Lavendon (LVN)

• Sage (SGE), the software accountancy business slipped 1.2 per cent to 275.8p last Friday on rumours it was acquiring France's Ingenico SA

• Gartmore (GRT), the fallen-from-grace fund manager, slumped nine per cent to close at 95.75p n Monday after reports emerged that rival fund manager Henderson Group (HGG) was looking to make a cash and shares offer as a discounted price of 95p

• There was talk that coal fired power company Drax (DRX), was being stalked at 500p a share, although this was somewhat fuelled by two broker notes on Tuesday morning. The shares closed up 1.7 per cent to 377p.

• Admiral Group (ADM), marked time yesterday at 1561p, up 0.6 per cent, despite talk that Allianz was eyeing the insurer up.