Analysts at Berenberg slightly raised their target price on wholesale distributor Supreme from 220.0p to 230.0p on Friday after the firm struck its first deal since its initial public offering earlier in the year.
Berenberg made the move after Supreme snapped up Vendek, a small batteries and lighting distributor in Ireland, for
up to 1.82m, stating it thinks the deal had “excellent strategic rationale” and expects there to be “a significant number of further accretive bolt-on deals” that Supreme could deliver over the coming years.
“We have nudged our estimates up by c2% to incorporate Vendek and increased our price target to 230p,” said Berenberg.
The German bank highlighted that the deal had two major sources of synergies. Firstly, it said Supreme should be able to use its larger scale to negotiate improved procurement terms for both batteries and lighting and secondly, the analysts noted that Vendek had “a much broader customer base in Ireland than Supreme”.
“We expect that Supreme can use Vendek’s existing relationships and salesforce to penetrate Vendek’s Irish customer
base with Supreme’s other product categories (vaping, sports nutrition, vitamins and household products)- in much the same way it did with its own batteries and lighting business in the UK over the past decade or so,” said Berenberg, which stood by its ‘buy’ rating on the stock.
“Supreme currently trades at 15.0x March 2022E P/E. We continue to believe that this remains good value for a cash-generative business generating double-digit earnings growth, with scope to drive further upgrades to estimates both organically and through additional bolt-on M&A (like that announced today) in the coming years.”
