I’m sure you’ve heard it before…
Markets are supposed to be ‘efficient’, prices are supposed to be ‘right’. The collective brain of all investors reflects ‘all knowable information’.
So the theory goes, anyway. I’ve never gone for this crackpot hypothesis – and it’s increasingly doubted in the investment community too.
Far from being an accurate reflection of reality, share prices are actually driven by sentiment and emotion. It doesn’t matter how flawed this sentiment may be, market prices move with the prevailing emotional winds.
A little episode last week just goes to show how wrong the market can be, and how investors with cool heads can capitalise for a quick profit.
It’s all about Supergroup
News came out that the fashion retailer Supergroup (LSE: SGP) had just landed one of the top retail experts in the UK. That should have helped the shares along.
It should have. But in fact, news of the new CEO sent the good ship Supergroup straight onto the rocks, falling nearly 5% on the announcement – and another 5% just this morning!
Why? Supergroup’s new head honcho has a first class CV. He trained on the Boots graduate scheme, before moving into marketing at Mars and Coca-Cola.
He then did a couple of years at Dixons and Matalan, and took up his first chief executive position at AS Watson, where he ran the Superdrug and Savers retail chains. In 2008, he joined blue-chip retailer Kingfisher, the company behind B&Q, rising to chief operating officer.
His name is Euan Sutherland. Name sound familiar?
It should do. He’s the guy that the Co-op Group poached to be CEO… just before the whole operation blew up in everyone’s face. Sutherland was offered the poisoned chalice in the spring of 2013, just weeks before its banking arm was, for all intents and purposes, declared bust.
In the end, Sutherland left in disgust, labelling the business as “ungovernable”. The board was stuffed full of jokers, and had no governance structure in place.
In a recent interview, Sutherland said of the job: “It wasn’t what I signed up to do, quite clearly I had to expose what had gone on before.”
Sutherland must have been tarred by the Co-op brush – why else would the shares fall on his appointment?
I’ve been following this story closely
Well, I followed the Co-op saga closely.
I backed an investment in the Co-op Bank’s bond (which, thankfully ended up in the money), so I had considerable skin in the game.
And I can assure you that far from being the problem at the Co-op, Sutherland was in fact key to steering the ship through treacherous waters.
Yet, in the end, the group became too much of a political hot potato. The Sunday papers exposed Sutherland’s £3.7m salary (a fact that was no doubt leaked by a disgruntled board member), everyone and his dog threw their arms up in the air, and Sutherland soon walked.
Now, don’t get me wrong here. I am aghast at some of corporate Britain’s pay packages. Remuneration committees are set up as an elite club of company directors all greasing the wheels of upwards-only pay awards.
And I’m not sure what Supergroup are paying him this time, though it was revealed that there’s nearly £2m of Supergroup shares on offer (subject to Supergroup hitting its targets, of course).
But to be honest, these are just the sorts of pay deals you get at the top of public companies. And I’m absolutely sure Supergroup would have had to pay a darned sight more a few years ago, before Sutherland made his ill-fated move to the Co-Op Group, that is.
So what? Well, rather than going berserk at Sutherland’s appointment, the market would do well to focus on what this actually means for the business.
This is just what Supergroup needs
I’ve been a fan of Supergroup ever since it floated in March 2010.
And it’s true, the company has had its fair share of ups and downs. But on the whole, it‘s been a tremendous success – and I’m confident in the group’s future.
Last Wednesday’s appointment of Sutherland is the last piece of the management jigsaw.
In 2012, Supergroup appointed former John Lewis director Susanne Given as chief operating officer. This allowed the founding members, Julian Dunkerton and James Holder, to focus on product and brand. And Sutherland now comes in to steer the group in the next level of expansion.
As Sutherland says: “There are a huge number of opportunities if you look globally at all the geographies we could go into… we are looking to grow the business even further east and even further west into Asia and the US…”
So, is it time to buy Supergroup?
Supergroup shares currently stand at 15 times earnings – not ridiculously cheap, you may think.
But bear in mind, last year profits increased 26%. The year before that, they were up 21%.
Not that we can rely on past performance, of course. But it strikes me that given the global growth opportunities, there could be many years of great growth ahead. That puts a multiple of 15 times earnings into some perspective.
And yes, before you say it, I know what you’re thinking… “this brand is going to crash and burn”.
Don’t worry – people have been telling me that for the last five years. But it never happens. In fact, Supergroup’s brands seem to be settling in to an established niche.
I dare say the market will get over its knee-jerk reaction to Sutherland’s appointment in due course. It’s now time for Sutherland to get back on his horse and take Supergroup into its final growth phase.
And that could be very, very interesting.