This report is an updated version of the report published on 19^th April 2022 at 3:04 PM (GMT +10)

BWX Limited

BWX Details

BWX Limited (ASX: BWX) is a leading beauty and wellness business with emphasis on the natural segment of the beauty and personal care market. The company’s six market-leading brands cover six personal care categories.

Decent H1FY22 Financial Results (For the Period Ended 31 December 2021)

• The group has recorded a robust underlying revenue growth of 26.5% and EBITDA growth of 26.2% in H1FY22 compared to the previous corresponding period, driven by the benefits of recent acquisitions and momentum in USA segment.
• Underlying NPAT increased to $4.7 million, up 22.1% over the prior period. However, the statutory NPAT came in at -$2.3 million.
• Its core brand margin improved to 58.5%, up by 334 basis points compared to the corresponding period, which resulted in lifting the group gross margin to 55.7%.
  

Exhibit 1: Profitability Trend

Source: Analysis by Kalkine Group

Recent Update

• On 31 March 2022, the company mentioned the resignation of Dave Fenlon from the post of Non-Executive Director of the company’s board.

Outlook

The company holds a solid balance sheet supporting reinvestment for longer-term growth. BWX expects to achieve strong underlying revenue and EBITDA growth in FY22 with performance weighted to H2FY22 in line with previous years. Meanwhile, it maintains a close watch on the external COVID-impacted trading environment. The company expects the growth potential to be driven by an expanded brand portfolio and delivery of omnichannel distribution gains in key regions. Additionally, the Clayton Facility will deliver a step-change in financial and operational performance owing to its reinvestment of cost savings towards brands building for long-term growth.

Key Risks

The Company is exposed to the risk of unexpected movements in foreign exchange markets or commodity prices that may challenge the profitability of the business. It is also susceptible to operational risks. Moreover, the company is prone to compliance and legislative risks, as it operates and sells its products in multiple countries.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

The stock has been valued using EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a potential rise of low double-digit (in % terms). A slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average) considering the healthy underlying revenue growth in H1FY22, strong underlying revenue and EBITDA growth guidance for FY22 and solid balance sheet.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the aforementioned factors and decent outlook, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.940 per share (Time: 11:33 AM (GMT +10), Sydney, Australia) on 19^th April 2022.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

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