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What’s Behind Super Group Ltd’s Big Rally Today?

As of 2:40pm today, instant beverage manufacturer Super Group Ltd (SGX: S10) is up by 9.48% to S$1.15. Roughly two hours prior, its shares made a sudden spike to a high of S$1.175 (see red bubble in chart below; click for larger view) and had been bouncing around that level since.

Super Group share price jump

Source: Google Finance

So, what happened with the company’s shares? I don’t know. And speaking as a shareholder of Super Group, I frankly don’t care either.

Before you chew me out for writing what seems like a pointless article here, I implore you to please read on and hear me out.

Since the start of 2004, Super Group has delivered capital gains of 541% as of its closing price of S$1.055 yesterday. In that same time frame, the instant coffee maker’s earnings per share has grown by 664% from 0.883 Singapore cents to 5.87 cents. So as you can see, it was the company’s 19% compounded annual growth rate in earnings which helped drive its 17% annualised share price gain.

As an investor, it is potential annualised returns of that magnitude (the 17% figure) over the long-term future which attracts me. And because of that, my day-to-day focus for Super Group isn’t on what its share price does – instead, it’s centered on what the company’s business might do years into the future.

Right now, Super Group has been enduring a few quarters of declining revenue and profits with demand for its beverage products slowing in its key geographical markets like Thailand, Myanmar, Singapore, and the Philippines. Super Group had started a rebranding campaign at the start of last year to improve the image of its products and keep demand growing; efforts on this are still ongoing.

Super Group’s other business segment, Food Ingredients, had also seen a big drop in sales growth. But, the company’s not sitting still. It’s offering new premium products such as Botanical Herbal Extracts and Nutritional Oil Powders; it’s improving existing products; and it’s also expanding its footprint in the food service sector. In short, Super Group is taking steps to grow this business.

The success or failure of the company’s new products and branding campaigns are what I’m focused on because, as we had seen above, it’s the company’s long-term business performance which drives its long-term share price returns.

The rewards are high if – and that’s a big if – the company can make it through its current funk. For a taste of the market opportunity that Super Group has with its instant coffee products, we can look to Euromonitor International’s research which pegs the Southeast Asia market for instant-coffee at US$4 billion in size 2017. Given Super Group’s current total annual revenue of S$539 million, the opportunity is huge. So, as a long-term investor, how the company’s business does is what I’m really concerned with.

A Fool’s take

As Super Group’s share price movement today has no bearing on how its business will do in the years ahead, there isn’t much reason for me to be alarmed or to want to dig further into this sharp spike in price we’re currently seeing.

I’d admit – it’s nice to see a sharp jump in price today (it’s only human to feel so) since I do own shares of Super Group after all. But is it important for me to find out the reason behind the price movement? Not at all.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Super Group.