The factors holding back vape-maker Supreme’s share price

Supreme (SUP) joined Aim in February 2021 by placing shares with institutions at 134p each. Since then, profits have substantially increased, but after an initial rise, the share price has fallen back to near its issue price. The financials seem sound, so what’s the problem?

Supreme develops and manufactures products, and also distributes a variety of brands both directly to consumers and through its retail networks. It supplies batteries, lighting, sports nutrition, wellness and branded household consumer goods, but its main business is vapes, which now generate almost two-thirds of its gross profits. The group claims to be the “largest producer of e-liquids by volume in the UK”, with more than 250,000 bottles in over 60 flavours produced every working day, and it also distributes brands such as the market-leading Elf Bar and Lost Mary disposable vapes.

The argument in favour of vapes is that they help smokers to quit, but the nicotine content in some can hook people as well. Supreme distributes vapes in brightly coloured packaging with sweet and fruity flavours such as “blue razz lemonade”, “rainbow burst” and “watermelon bg (bubblegum)” that could appeal to children. In January this year, the government said that the proportion of 11-to-17-year-olds using disposable vapes had risen ninefold over the past two years. It’s too early to know the long-term impact on the development of young lungs, hearts and brains; a small but increasing number have already been admitted to hospital with vaping-related disorders.

Disposables are popular because they’re cheap, compact and easy to use, but the environmental consequences are dire, which is why Greenpeace has been campaigning for them to be banned. The alternative is reusable vapes, which are more expensive. They can have refillable pods that enable users to switch flavours and adjust the nicotine strength, and some can be customised with adjustable airflows and power settings, but the bewildering range of choices can seem daunting. Supreme says that recycled plastic is used in its market-leading 88Vape product, and that the group is “substituting plastic for more sustainable alternatives” in its wider brand portfolio.

But according to Greenpeace, disposable vapes are impossible to recycle because the plastic and copper is fused around a lithium battery. Almost 5mn disposables are thrown away every week in the UK. Over a year, that amounts to about 40 tonnes of lithium, enough to make 5,000 electric cars. Crushing vapes can cause the lithium to catch fire and the acid and nicotine can leach into landfill sites. 

Towards the end of last year, some investors raised questions about a £350,000 donation made to the Conservatives. A spokesperson said that this was funded by “Sandy Chadha, group chief executive of Supreme”, who “has, historically, donated funds to the Conservative Party. These donations are unrelated to Supreme Plc, of which Mr Chadha is a shareholder”. Chadha owns 57 per cent of Supreme, which, according to company filings, used to be a related party of Supreme 8 Ltd, the company through which the donation was made. Media reports said that this sort of amount could give privileged access to senior government ministers, and some latched on to one of the risk factors identified by Supreme in its last annual report: that tighter regulations “could threaten the future of the industry”. 

Last year, Supreme, along with UK market leaders such as the Chinese-owned Elf Bar and British American Tobacco (BAT), called for more stringent vaping regulations. Supreme’s directors expressed the hope that there’d be sufficient lead time to enable the group to adapt, and said that the group would drop some sweet-sounding flavours and change the names on some of its own-brand vapes. For disposables, it’s a classic ESG dilemma: why withdraw products if competitors are allowed to sell them? The prime minister announced a ban on disposable vapes in January, but the legislation has yet to reach Parliament and could be disrupted by the general election. Enforcement is the issue. Can internet sales be restricted and would the trade be driven underground? The ban is unlikely to come in much before 2026, but until it does the group’s growth is partly being subsidised by the public expense of waste disposal.

Supreme’s directors now predict that about a third of group revenues will come from disposable vapes during its 2024 financial year, which suggests that reusable ones will account for almost another third. They are also predicting a further boost to profits when more people make the switch to reusables in 2025. 

The share price has been held back because of that political donation, worries about environmental contamination, and suspicions that children are still attracted to the company’s products.