Warpaint London — World of Warpaint

Warpaint London — World of Warpaint

Warpaint London is a creative design-focused cosmetic brand proposition delivering high-quality cosmetics at affordable prices. Its focus is to develop its flagship brand, W7, while capitalising on the growth potential of e-commerce and international expansion. Consensus forecast revenue growth is underpinned by the implementation of the e-commerce strategy and broadening of international operations.

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Warpaint London

World of Warpaint

Consumer

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10 October 2017

Price

217.5p

Market cap

£140m

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Share details

Code

W7L

Listing

AIM

Shares in issue

64.5m

Business description

Warpaint London is a UK-based company engaged in the colour cosmetics business both domestically and overseas. It floated on AIM in November 2016. Warpaint has two divisions: close-out and own-brand. The latter consists primarily of the company’s flagship brand, W7, which remains the key focus of Warpaint.

Bull

Fast-growing industry with broad customer base.

Strong trade relationships through close-out history and brand reputation with W7.

Positioned in an industry that has demonstrated resilience to economic cycles.

Bear

Dependence on key personnel, as a result of a relatively small senior management team (although management structure has been strengthened since IPO).

Risk of litigation, specifically with product liability.

Rapid international growth carries execution risk.

Analysts

Paul Hickman

+44 (0)20 3681 2501

Richard Lewis Jones

+44 (0)20 3077 5700

Warpaint London is a creative design-focused cosmetic brand proposition delivering high-quality cosmetics at affordable prices. Its focus is to develop its flagship brand, W7, while capitalising on the growth potential of e-commerce and international expansion. Consensus forecast revenue growth is underpinned by the implementation of the e-commerce strategy and broadening of international operations.

Fourfold strategy

Warpaint’s strategy to grow focuses on the continuing development of the W7 brand. The disruptive potential is the ability to move from idea to market in 3-5 months, which is beyond the capability of larger cosmetics houses. W7 is an innovative, design-focused brand proposition, predominantly selling to high street retailers and independent beauty shops. A global growth strategy sees it now in 56 countries, with key focus on the US and China. Additionally, the online channel is a growing contributor to revenue and highlights the scope for further sales growth. Management is also progressing opportunities for other brands such as Taxi.

International ambitions in colour cosmetics

The colour cosmetic market is valued at c $52bn according to a global industry study and forecasts suggest this will rise to $80bn by 2026, a CAGR of 4.8%. Warpaint aims to build internationally recognised brands, starting with W7. Exports of W7 are 58% of revenue as UK dependence reduces. By enhancing distribution and marketing platforms to incorporate social media and e-commerce, the offering should become more widely available to an international audience. W7 has recently launched a new range of ‘Very Vegan’ cosmetics, which has shown encouraging sales traction. In addition to other brands, including Outdoor Girl, it has a close-out division, which buys and sells close-out and excess stock of branded cosmetics.

Valuation

Warpaint’s joint CEOs have been working together for 25 years and have deep experience of their market. The own-brand division (83% of revenue) enjoyed over seven years of revenue growth before IPO, and consensus forecasts are for meaningful revenue and profit growth to continue. At interim, PBT before plc costs rose 6% but with a strong Christmas order book, consensus expects FY17 PBT to grow 13% inclusive of plc costs in 2017. Warpaint’s progressive dividend policy is reflected in the forecasts, with dividends per share increasing y-o-y from FY16 to FY18. Net cash of £3.5m in FY16 is expected to grow to £7.0m in FY17.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/15*

22.3

5.4

6.9

N/A

31.5

N/A

12/16*

27.0

6.7

8.6

1.5

25.3

0.7

12/17e

30.2

7.6

9.4

4.0

23.1

1.8

12/18e

35.8

9.5

12.0

5.0

18.1

2.3

Source: Company results, Stockdale Securities. Note: *Pro forma incl. CloseOut business.

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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Frankfurt +49 (0)69 78 8076 960

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Germany

London +44 (0)20 3077 5700

280 High Holborn

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United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2017]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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