Warpaint London’s strategy is to provide customers with access to an extensive range of high-quality and affordable cosmetics. Its focus has been to develop its flagship brand, W7, while capitalising on the growth potential of e-commerce and international expansion. Although the pandemic caused the temporary closure of a number of customer retail outlets, the business remains in a strong position thanks to management’s agility. Cash has been conserved and the business is now debt free. Given its exposure to the gifting segment, results are always skewed towards H2. FY21 has started well, with Q1 revenues up 9% versus the prior year, and management is optimistic that these encouraging trends will continue.
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Warpaint London |
Returning to growth
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Consumer |
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30 April 2021 |
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Business description
Bull
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Warpaint London's strategy is to provide customers with access to an extensive range of high-quality and affordable cosmetics. Its focus has been to develop its flagship brand, W7, while capitalising on the growth potential of e-commerce and international expansion. Although the pandemic caused the temporary closure of a number of customer retail outlets, the business remains in a strong position thanks to management’s agility. Cash has been conserved and the business is now debt free. Given its exposure to the gifting segment, results are always skewed towards H2. FY21 has started well, with Q1 revenues up 9% versus the prior year, and management is optimistic that these encouraging trends will continue.
Business is debt-free despite pandemic
Group revenue of £40.3m in FY20 compares to FY19 revenue of £49.3m, with adjusted operating profit of £2.5m versus £5.6m in FY19. These were affected by the temporary closure of a number of customer retail outlets. FY20 EPS was 3.1p versus 6.3p a year ago. Cash generation continued and cash at year end was £4.9m, and £5.8m at the time of results. The final dividend is recommended at 3.0p bringing the total to 5.8p (as a reminder, including the special dividend of 1.3p paid in November 2020 to reflect the absence of a final dividend in 2019).
Focusing on growth
Warpaint continues to focus on growing the business. It has successfully launched the W7 brand in Tesco and Technic in wilko in the UK, and it is working on expansion in the United States and China. The pandemic accelerated the group’s move to online/e-commerce. The close-out business purchases third-party stock which is then repackaged for sale. While this division is a good source of market intelligence, the group has further reduced its focus in this area with the decision to reduce close-out sales in the US in order to concentrate on selling its own brands. Close-out accounted for 12% of group revenue in FY20 (down from 15% in FY19) and was intentionally reduced further in Q121.
Valuation
Warpaint trades at a substantial discount to the international cosmetics sector on c 60x FY22 consensus earnings. This is warranted by its smaller scale, value proposition, less-recognised brands and own-label offering. We believe the discount could narrow, contingent on the continued successful delivery of management guidance, hence validating the strategy.
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Consensus estimates
Source: Refinitiv, company data |
EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: Financials
Scherzer’s (PZS) NAV per share at end-March 2021 stood at €3.12, 83% higher year-on-year. This was a result of strong FY20 income, with PZS’s EPS at €0.42, vs an FY19 loss of €0.08 and an FY12–19 average of €0.12, paired with a low base effect from end-March 2020 (pandemic outbreak). Meanwhile, PZS’s share price somewhat lagged the recovery and the discount to NAV widened to its current 10.9%, while PZS traded at par before the crisis. Following the profitable disposal of its AXA claims, PZS’s extra compensatory claims (ECS) portfolio stood at €122m at end-March 2021 (12% lower year-on-year).