Before the results were revealed for the crunch vote at which Julian Dunkerton won back control of Superdry it was by no means obvious that the retailing entrepreneur was going to be victorious.
Those few leading shareholders that broke cover in advance, including Standard Life Aberdeen, had thrown their weight behind the boardroom team at the fashion retailer that Mr Dunkerton, 54, its co-founder, had been trying to evict.
Yet, after a six-month slog, victorious he was, parachuting into the boardroom only to find that everyone had resigned and he would have to take over as chief executive.
That was April. Since then Mr Dunkerton has rebuilt the board, helped by Peter Williams, 65, his chairman, extended his tenure and recruited a corporate broker — as well as warning on profits and presiding over a floundering share price.
Mr Dunkerton set up Superdry as a market stall in Cheltenham in 2003 with his partner, James Holder, 47, opening a shop in central London the following year. Listed in 2010 for 500p a share, the retailer enjoyed success under his leadership with its distinctive brand of sporty fashion with its characteristic Japanese logos.
Then, after several missteps and profit warnings, he was replaced as chief executive in 2014 by Euan Sutherland, 42, the former Co-operative Group boss, taking a part-time job as “founder and product brand director” then leaving entirely last March. It didn’t take him long to decide he wanted back in. He rejoined a business with 271 stores, including 104 in Britain, plus franchised outlets overseas.
Mr Dunkerton’s argument about how Superdry has lost its way and the right plan for finding it again is straightforward stuff. The problem: tired designs; an indisciplined and expensive international expansion; and near-constant discounting that was eroding the brand’s premium quality and its profit margin.
The solution: no more ad hoc discounting; put more and better clothes on the shelves and online; and reduce unnecessary warehousing and office costs overseas, particularly the US.
Mr Dunkerton’s mantra has been that the recovery has to be design led: in short, the clothes have to become cool again.
Of course, the choice to follow him is an almost total leap of faith. Sales in store and online are continuing to fall, as are its wholesale sales to independent retailers.
Pretty much the only firm evidence of his strategy at work is in the margin, which improved from 68.2 per cent to 71.4 per cent during the six months to late October after he brought an end to its discounting policy. An average of 70 per cent of sales are at full price, against 52 per cent during the first half last year.
In fairness there are other gentle indications, including a slowdown in the rate of the sales decline to 9.4 per cent in the second quarter from 13.9 per cent in the first quarter.
Mr Dunkerton reckons that his reinvention will take about three years and, with the retailer’s new-look designs only set to make their presence felt in the early part of the new year, it will be a good six to nine months before investors get any sense of whether it’s starting to work.
Making a success of retail during the trading crisis can be done; see Next and JD Sports. And he’s done it before, in the process getting Superdry’s shares to above £20.00 in the past two years.
In the meantime the stock languishes, up 2¼p, or 0.5 per cent, at 458½p. It trades at a rock-bottom 8.9 times Jefferies’ forecast earnings, for a dividend yield of a little above 2 per cent. For those prepared to take a highly speculative risk it could be worth a gamble.
ADVICE Buy
WHY Risky gamble on a recovery share that will perform very strongly if the turnaround comes good
Team17
As the archetypal high-growth technology company, Team17 has given the City just about everything that it has asked for since it listed in May last year: high double-digit revenue and profit rises, earnings upgrades and a reasonably high-octane share price.
Despite the company being highly cash generative, the one thing missing has been a dividend. That may yet come, when Team17 has run out of things that it would rather do with its money, but as it stands that prospect feels some way away.
Team17 has launched more than 100 computer games since it was founded in 1990, but is probably best known for its big hit Worms, which was created in 1995 and still generates plenty of revenue for the company. With offices in Nottingham and Wakefield, as well as developing its own games, the company co-develops ideas and markets games for other parties.
Its listing 18 months ago enabled its private equity backer LDC to make a partial exit, as well as raising roughly £107.5 million, some of which will be ploughed into developments and future acquisitions.
This company’s business model is an interesting one. Because it develops its own titles, away from the orbit of blockbuster studios or big film releases, it can control the timing and quality of its output. Capping its investment in any single project at £1 million also means that Team17’s losses in the event of a big gaming flop will be limited, though it has yet to fail to recoup its initial outlay on any project so far.
It doesn’t make any of its games available for free and has maintained its cultish status with gamers.
As ever in the tech game, there is always the risk of an upstart competitor emerging with a smarter, cooler and cheaper idea. Team17 does generate close to three-quarters of its revenue from its back catalogue, so has substantial earnings underpinning new launches.
The shares, up 15p, or 4.4 per cent to 352½p, have more than doubled since the listing. The lack of a dividend means there is no yield, but the price values Team17 at 34.9 times Liberum’s forecast earnings. Yes, it’s expensive, but this company feels as if it has an awful lot more to give.
ADVICE Buy
WHY Low-risk growth with plenty of potential
