Super worries over Rebel

Analyst have voiced concern about the obstacles in the way of Super Retail Group achieving its long-term growth targets for the newly acquired Rebel Sport.

Underlining the problems facing Super Retail, which also owns Ray's Outdoors, Boating Camping Fishing (BCF) and Supercheap Auto, revenue for Rebel fell from $630 million in 2009-10 to $603 million in 2010-11 while pre-tax earnings were flat at $77 million.

''In our view, the challenge for Rebel is to grow sales after a number of years of declining sales including slightly negative like-for-like sales,'' Goldman Sachs analyst George Batsakis said.
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Mr Batsakis added in a note to clients yesterday that like-for-like sales had also been slightly negative for the year to date, with Super Retail expecting to increase sales at the sporting goods group through reinvestment in the business.

Super Retail announced on Monday it had agreed to pay $610 million for Rebel Sport and stablemate retail chain Amart All Sports, scooping up the business from private equity owners Archer Capital after they failed to flip the business onto the market via a sharemarket float.

The purchase is a big bet for Super Retail, which has a market capitalisation of only $859 million, and comes as the retail sector faces the worst trading conditions in 30 years.

Shares in Super Retail, which closed on Friday at $6.50, remained in a trading halt yesterday. The company is completing a fully underwritten 9-for-19 renounceable entitlement offer for new shares priced at $5.34 to raise roughly $334 million for the deal. The balance of the acquisition will be funded by debt.

''We believe Rebel may encounter a number of obstacles to achieving long-term sales growth targets,'' Mr Batsakis said. The obstacles included the growth of online retailing, expansion of local specialist sports retailers and resistance by global athletic brands to reducing prices.

Samantha Carleton of Credit Suisse described the deal as a ''full price paid for Rebel Group''.

She said that the group's 11 per cent margin on earnings before interest and tax was unsustainable.

''The most feasible earnings scenario in our view is for relatively flat earnings growth over the next few years as Super Retail reinvests in retail margins to drive sales and single-digit earnings growth over the longer term,'' she said.

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