Super Retail Group FVE Cut After Reassessing of Competitive Dynamics

We cut our fair value estimate of Super Retail to AUD 7.70 from AUD 9.00, driven by a more muted outlook on sporting goods and leisure segments, partially offset by a more optimistic view on the auto parts business. Amazon is poised to shake up the Australian retail landscape in most categories when it commences its operations sometime during the next 12 months, and Super Retail is not immune. We expect competition to intensify across all the group’s segments, resulting in price cutting, lower margins, and greater investment needs in digital channels and in-store service. We anticipate the company can offset these factors by gradually consolidating the brick-and-mortar channel, as smaller, unprofitable competitors exit due to compressing EBIT margins, but now view shares as slightly overvalued. We rate management’s stewardship of shareholder capital as Standard.