Super Retail Group (ASX: SUL) keeps on growing at a steady rate, announcing two new distribution centres to be developed (in Queensland and New South Wales) to expand its business. Being in a mature market, net profit margin is running at about 4-5% annually even though revenues are growing at median annual 15% and NPAT is up a median 29% annually over the past 10 years.
This is similar to Woolworths (ASX: WOW), which has grown so big that it grows at the rate of the general economy. Woolworths is competing with Coles and Bunnings, owned by Wesfarmers (ASX: WES), for groceries, retail shopping and hardware business, yet Super Retail Group has a major hold over the sporting and camping equipment retailing industry — 21.3% of the total. It’s closest competitor, privately owned SportsPower, only has a 3% market share.
Source: Ibisworld .com.au
So while Woolworths and Wesfarmers are battling it out, Super Retail Group is growing and buying out competitors. It also has SuperCheap Auto, the 289-store auto parts and accessories business. Its closest competitor in that industry is privately owned Repco (taken private in 2007), which has 290 stores nationwide.
Being diversified amongst the national pastimes of cars, travelling, sports and outdoor activities, it feeds the demand of a wide demographic across Australia. Because it’s only about 1/20th the market capitalisation of Woolworths or Coles, the titans fight on, not paying too much attention to Super Retail Group positioning itself.
Until other major competitors arise, Super Retail Group can look forward to a stronger grip on its market share, and steady growth. The barriers to entry in its industries are not high, so it will always have to be looking towards the horizon for potential rivals arriving. If investors were to think two or three steps ahead though, they could even imagine a company like Woolworths and Wesfarmers potentially trying to take Super Retail Group over when the grocery and hardware wars leave no new markets to expand into.
Super Retail Group’s financials are pretty strong, and shareholders equity has risen an average 29% annually since 2004. Its debt-to-equity ratio is acceptable, so the balance sheet is robust for a mature market player. A current PE ratio in the mid-20s matches up with the high NPAT growth. Until another big competitor comes along while it is steadily growing, it will do just that- keep on growing.
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Motley Fool contributor Darryl Daté-Shappard does not own shares in any of the companies mentioned in this article.