BWX Limited

BWX Details

Strategic Collaboration with Chemist Warehouse Group (CWG): BWX Limited (ASX: BWX) is a vertically integrated beauty and personal care production and distribution firm. Sukin, Andalou Naturals, Mineral Fusion, and DermaSukin are a few of its skin and hair care brands. As of 12 March 2021, the market capitalisation of the company stood at ~$667.02 million. On 9 March 2021, Regal Funds Management Pty Limited (RFM) became an initial substantial holder in BWX Limited with 9.55 million ordinary shares and 6.8% voting power.

Recently, BWX announced the issuance of 881k shares to its recently inked equity-related strategic collaboration with CWG. This issue was the first tranche of BWX securities of the five-year partnership agreement signed. With this deal, BWX will become a platinum supplier of CWG and distribute the full array of its products online and in-store in Australia (ANZ), New Zealand (NZ), and Ireland.

A Look at the 1H21 Financial Results: During 1H21, BWX reported an increase of 0.56% YoY to $84.53 million on pcp in business operations revenue. This movement in revenue is due to the mixed performance of brands during 1H21. Brand Sukin saw growth of 12% YoY on pcp, digital business - Nourished Life grew by 18% YoY on pcp though revenue growth of Andalou Naturals and Mineral Fusion brands was down on pcp for 1H21. The company saw a revenue increase of 260% in its e-commerce sales and focussed efforts to strengthen online consumer spending. During 1H21, BWX inked an agreement with Woolworths Group Limited (WOW) as a retail partner for brand Sukin and will increase the brand’s reach with 50k new distribution points. The net profit after tax increased to $9.85 million, up by 133.1% YoY in 1H21 on pcp. The net cash flows from operating activities stood at $9.81 million during 1H21 due to customers’ higher cash receipts.

BWX paid a final dividend of 2.6 cents per share, 100% franked on 8 October 2020 for FY20. The Board has declared a fully franked dividend of 1 cent per fully paid ordinary security for 1H21 payable on 15 April 2021. It held a cash balance of $77.73 as of 31 December 2020.

FY20 Highlights (Source: Company Reports)

Key Risks: The company faces the risk of uncertain macro-environment, a slump in employment levels, discretionary spend & income of the consumers, COVID-19 crisis and lockdown restrictions, and subdued retail scenario. It also faces the risk of dependence on a single market for sourcing raw material components. 

Outlook: BWX has estimated an ongoing increase in revenue and EBITDA of a minimum 10% in FY21, subject to the market conditions. BWX has a well laid out plan for the next 1-1.5 years as the consumer demand recovers. It has a new operations facility under construction in Victoria and on track for opening in December 2021. 

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

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of BWX gave a positive return of 39.35% in the past nine months and a positive return of 54.19% in the past one year. The stock is currently trading towards its 52-weeks’ high level of $5.18. The stock of BWX has a support level of ~$4.554 and a resistance level of ~$5.158. We have valued the stock using the enterprise value to sales multiple based illustrative relative valuation method and have arrived at a target price of high single-digit downside (in % terms). For this purpose, we have taken peers like Lovisa Holdings Limited (ASX: LOV), McPherson's Limited (ASX: MCP), Adore Beauty Group Limited (ASX: ABY) to name a few. We believe that the company can trade at some premium compared to its peer average, considering growth in EBITDA, and NPAT for 1H21, new long-term distribution agreements with WOW and CWG, plans and guidance for FY21. Considering the current trading levels, decent stock returns in the past nine month and one year, and related risks of retail closures, and supply chain issues due to COVID-19, we give a ‘Sell’ rating on the stock at the current market price of $4.780, up by 0.631% on 12^th March 2021.

BWX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Codan Limited

CDA Details

1H21 Results and Financial Performance: Codan Limited (ASX: CDA) is a technology manufacturer and marketer of a diversified range of value-added electronic products for governments, businesses, and consumers. As of 12 March 2021, the market capitalisation of the company stood at ~$2.59 billion. During 1H21, CDA registered growth in revenue of 14% YoY to $194.5 million on a pcp basis. This growth is due to robust demand for metal detectors across the company’s all markets, sales growth of 55%, and increased manufacturing capacity. Its sales from Tactical Communications business reduced (50%) as affected by COVID-19. However, it has a robust sales pipeline and $40 million worth of backorders. The company held $42 million of free cash flows for 1H21 due to strong revenue and customers’ collections. The company witnessed a net profit increase of 21% YoY to $41.3 million on pcp. The Board has declared an interim dividend of 10.5 cents per share fully franked payable on 11 March 2021. CDA held a cash balance of $111.20 million as of 31 December 2020.

1H21 P&L Highlights (Source: Company Reports)

Key Risks: The company faced the impact of the pandemic restrictions on travel, deferred government programs and delays in deal closures on its Tactical Communication business. It meets the risk of achieving desired synergies and benefits from the acquisitions and mergers. It is exposed to the technology disruptions in the business model and volatility in demand from its user industries.

Outlook: For FY21, the company foresees strong demand for its metal detectors products. It is planning to launch a new gold detector GPX6000TM, in Q4FY21. For the Communications business, it has shipped a large $13 million contract in February 2021 and expects FY21 sales of this business between ~$80-$90 million. It also expects to close the ongoing deal with Domo Tactical Communications (DTC), US, by April 2021 and undertake its business integration within Tactical Communications.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of CDA gave a positive return of 124.73% in the past nine months and a positive return of 163.44% in the past one year. The stock is currently trading towards its 52-weeks’ high level of $15.74. The stock of CDA has a support level of ~$14.24 and a resistance level of ~$15.734. We have valued the stock using the Enterprise Value to EBITDA based illustrative relative valuation method and have arrived at a target price of low double-digit downside (in % terms). For this purpose, we have taken peers like Smart Parking Limited (ASX: SPZ), Ava Risk Group Limited (ASX: AVA), Audinate Group Limited (ASX: AD8), to name a few. We believe that the company can trade a slight premium compared to its peer median, considering its revenue growth, record EBITDA growth, increase in net profit and pipeline of projects in FY21. Considering the current trading levels, significant returns in the past nine months and one year, and associated risks of the pandemic on business deals and project delays, we give a ‘Sell’ rating on the stock at the current market price of $14.990, up by 4.459% on 12^th March 2021.

CDA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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