Revolution Beauty Group — Looking good

Research: Consumer

Revolution Beauty Group — Looking good

Revolution Beauty Group’s (REVB’s) capital markets day (CMD) provided an opportunity for the new management team to present its refocused strategy: to become a top five global beauty brand by 2030. Management aims to drive product innovation at affordable prices, tailored to the demands of its target Generation Z consumer. REVB will continue to develop its online and offline routes to market with new and existing direct-to-consumer (D2C) and business-to-business (B2B) partners, using data to grow its online presence and improve marketing campaigns. Efficiency initiatives in inventory, supply chain and operations, as well as strategic choices with distributors and vendors, should provide cost savings and subsequent reinvestment in marketing spend to drive growth.

Written by

Milo Bussell

Analyst, Consumer and TMT

Consumer

Revolution Beauty Group

Looking good

Personal care products

QuickView

14 February 2024

Price

26.6p

Market cap

£85m

Share price graph

Share details

Code

REVB

Listing

AIM

Shares in issue

318.3m

Business description

Revolution Beauty is a UK-based beauty and personal-care products company, primarily targeted at Generation Z consumers. By product, Cosmetics accounted for 78% of FY23 revenue, Skin 8% and Other 14%. Revolution Beauty operates across a number of geographies, including the UK (34%), the US (27%) and Rest of World (39%).

Bull

Revolution Beauty has a strong brand with broad geographic exposure in growth markets.

New management team has a focused strategy to become a top five mass beauty brand by 2023.

The core product offering to the Gen Z consumer provides a clear focus for the business.

Bear

The shares were suspended between 1 September 2022 and 28 June 2023 after the company failed to publish accounts within the required timeframe.

The beauty market is highly competitive with large market incumbents.

Revolution Beauty has a concentrated shareholder register and relatively small free float of 35%.

Analysts

Milo Bussell

+44 (0)20 3077 57 00

Russell Pointon

+44 (0)20 3077 57 00

Revolution Beauty Group’s (REVB’s) capital markets day (CMD) provided an opportunity for the new management team to present its refocused strategy: to become a top five global beauty brand by 2030. Management aims to drive product innovation at affordable prices, tailored to the demands of its target Generation Z consumer. REVB will continue to develop its online and offline routes to market with new and existing direct-to-consumer (D2C) and business-to-business (B2B) partners, using data to grow its online presence and improve marketing campaigns. Efficiency initiatives in inventory, supply chain and operations, as well as strategic choices with distributors and vendors, should provide cost savings and subsequent reinvestment in marketing spend to drive growth.

Refocused strategy

REVB has faced several well-publicised financial and commercial issues over the past two years since listing in mid-2021. The new management team is focused on improving the group’s financial performance and growth prospects. The new strategy concentrates on three brands (REVOLUTION, Relove and I Heart) with fewer stock keeping units in seven categories, down from seven brands across 11 categories. This should enable greater profitability and free cash flow generation. REVB’s internal team can identify product areas trending on social media, which can then be brought to market in 16 weeks. This is significantly more agile than many of its peers, which typically take 18 months.

Growing market opportunity

REVB has a resilient and diversified revenue mix, operating in five of the eight largest markets. The global beauty and personal care market is expected to grow to $737bn by 2028, from $626bn in 2023 (source: Statista). This represents a clear opportunity for REVB to take share, with management targeting c £1bn of retail sales by 2030, from c £370m at present, to become a top five mass beauty brand from the current position of 13. By market, the US is the priority, while growth should be driven by investment in the master REVOLUTION brand, innovation, the development of D2C and B2B channels and the opportunity in skincare.

Improving financial profile

The refocused strategy is already bearing fruit, with the interim results highlighting revenue growth of 20%, an 8pp improvement in gross margin and the return to positive EBITDA. Management updated its FY24 guidance at the CMD, anticipating single-digit revenue growth with an improved adjusted EBITDA range of £11–12m. Alongside the revenue targets, REVB is aiming for £10m of cost savings over the next three years, indicating robust margin expansion.

Historical financials

Year
end

Revenue
(£m)

Gross profit
(£m)

Adj EBITDA
(£m)

PBT
(£m)

P/E
(x)

Yield
(%)

02/22

184.6

71.0

(0.8)

(45.9)

N/A

N/A

02/23

187.8

75.9

(7.5)

(38.9)

N/A

N/A

Source: Refinitiv. Note: Consensus is not available.

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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General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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