Intrinsic Value Supreme Plc (SUP.L)

• Previous Close: £150.00
• Intrinsic Value: £74.44
• Upside potential: -50%

Stock Valuation Context

Business Model And Market Position

Supreme PLC operates as a diversified supplier of consumer goods in the UK, spanning five key segments: Batteries, Lighting, Vaping, Sports & Nutrition, and Consumer Household Goods. The company’s vertically integrated model, particularly in vaping under its 88Vape brand, allows it to control production, distribution, and retail partnerships. Its products reach discount retailers, wholesalers, supermarkets, and independent stores, ensuring broad market penetration. Supreme’s focus on value-oriented consumer essentials positions it resiliently in cost-sensitive markets, while its export activities provide incremental growth opportunities. The company’s agility in adapting to regulatory shifts, especially in vaping, underscores its competitive edge in a dynamic sector. With a lean operational structure and strong supplier relationships, Supreme maintains a defensible niche in the UK’s competitive consumer goods landscape.

Revenue Profitability And Efficiency

Supreme reported revenue of £221.2 million for FY2024, with net income of £22.4 million, reflecting a net margin of approximately 10.1%. Operating cash flow stood at £27.1 million, indicating robust cash generation relative to earnings. Capital expenditures of £5.3 million suggest disciplined reinvestment, aligning with the company’s focus on scalable growth. The efficient cost structure is evident in its ability to maintain profitability across diverse product lines.

Earnings Power And Capital Efficiency

Diluted EPS of 18p demonstrates Supreme’s earnings capacity, supported by a capital-light model and high inventory turnover typical of fast-moving consumer goods. The company’s operating cash flow conversion rate appears healthy, with minimal debt-related drag. Its focus on higher-margin segments like vaping likely enhances return on invested capital, though sector-specific risks (e.g., vaping regulations) warrant monitoring.

Balance Sheet And Financial Health

Supreme’s balance sheet shows £11.6 million in cash against £14.7 million of total debt, indicating moderate leverage. The net debt position of £3.1 million is manageable, with operating cash flow covering interest obligations comfortably. Working capital efficiency is implied by the positive cash flow generation, though further details on receivables and inventory would clarify liquidity dynamics.

Growth Trends And Dividend Policy

The company’s growth is driven by organic expansion in vaping and strategic distribution partnerships. A dividend of 1.8p per share signals a shareholder-friendly policy, with a payout ratio of ~10% based on EPS, leaving room for reinvestment. Export initiatives and potential category extensions (e.g., vaping accessories) could sustain mid-single-digit revenue growth.

Valuation And Market Expectations

At a market cap of ~£198 million, Supreme trades at ~8.8x trailing revenue and ~8.8x net income, reflecting modest multiples for a niche consumer goods player. The beta of 1.03 suggests market-aligned volatility, with investor sentiment likely balancing growth potential against regulatory risks in vaping.

Strategic Advantages And Outlook

Supreme’s strengths lie in its diversified product mix, in-house manufacturing capabilities, and strong retail relationships. Near-term challenges include regulatory scrutiny of vaping and input cost inflation. However, its lean operations and focus on value-oriented segments position it well for steady, if unspectacular, growth in the UK market.

Sources

Company filings, London Stock Exchange disclosures