The Super Retail Group Ltd (ASX: SUL) share price jumped higher this morning after it got upgraded by a leading broker.
The ASX retailer rallied 4.8% to $12.04 when the S&P/ASX 200 Index (Index:^AXJO) added 0.7% at the time of writing.
Super Retail share price zooms on broker “buy” upgrade
The Super Retail share price is getting an extra boost from a bullish report by UBS. The broker thinks this is the time to pick up Super Retail shares as it upgraded the auto and outdoor retail group to “buy” from “neutral”.
UBS pointed to several tailwinds to justify the upgrade. Firstly, a survey by UBS found that consumes have record spending intentions. That’s great news for retailers as we head into the all-important Christmas shopping period.
Tailwinds from stronger economy and jobs
Secondly, UBS economists are feeling even more confident about the labour market. Most of Australia is still in lockdown and there are already many industries complaining of the lack of workers. What will happen as NSW and Victoria emerges from COVID-19 restrictions?
Then there is the $120 billion in “hidden” stimulus. This is the amount Australian households have saved due to the lack of spending options and government support payments.
Speaking of which, government payments are expected to continue, although this will change from support to stimulus payments, added UBS.
Super Retail share price invited to the COVID reopening party
Finally, there’s greater confidence that Australia will reopen for business. The rate of vaccinations and comments by the NSW and Victorian governments on following the national roadmap should give us hope.
These positives will benefit many ASX retail shares, but the Super Retail share price may be better placed to benefit than most.
Super Retail share price in sweet spot
“COVID-19 restrictions have seen a shift in consumer spend to retail vs experiences (e.g. travel, eating out),” said UBS.
“With an end to lockdown and COVID-19 restrictions expected to see this reverse. The prospect of strength in retail & travel is contrary to recent discretionary retail share price underperformance and P/E multiple de-rating compared to reopening exposures.”
The Super Retail share price is one of the underperformers. Its shares have fallen by around 11% since it posted its full year results in August.
This meant that the retailer’s FY22 price-earnings (P/E) multiple has derated to about 13 times from 15.6 times.
“Yet SUL enjoys reopening leverage with the consumer expected to return to recreation activities (BCF and Macpac), sporting activities (Rebel) and driving holidays (SCA),” added UBS.
“Given its strong FY21 inventory position, a key advantage given global supply chain issues, and track record of EBIT margin expansion with strong sales (gross margin expansion due to availability issues, operating leverage), we expect SUL to enjoy a strong recovery post lockdown.”
The broker’s 12-month price target on the Super Retail share price is $13.50 a share.