Why Super Retail Group Ltd is a buy

Goldman Sachs has upgraded Super Retail Group Ltd (ASX; SUL) to a buy based on its acquisition of Macpac and recent trading and strategy update. Goldman has increased the forecast earnings for FY19 for the company by 13%, supported also by the “simplification of the retail strategy, solid valuation support and a robust macro backdrop for the Australian consumer.”

Super Retail specialises in retailing of Auto, Leisure and Sports’ products across Australia, with seven retail brands across 634 retails stores.

Super Retail is trading on a forward price-earnings-ratio (PER) of 12x, below the Retail sector median PER of 14x, paying an annual 6% fully franked dividend. Goldman sees upside in the share price to $9.45, which is a rise of 11% from the current price $8.45 at the time of writing.

The key risks include online and international competition.

Bapcorp Ltd (ASX: BAP), which focuses on the distribution of automotive aftermarket parts, is trading on a forward PER of 28x.

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Motley Fool contributor Rosemary Steinfort has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia owns shares of Super Retail Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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