This report is an updated version of the report published on 5^th May 2022 at 12:10 PM (GMT +10)

BWX Limited

BWX Details

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

Financial Results for the First Half Ended 31 December 2021 – H1FY22

• The revenue grew by 26.5% YoY, and EBITDA increased by 26.2% YoY in H1FY22, driven by the benefits of recent acquisitions and momentum in the USA segment.
• The digital segment posted H1FY22 revenue of $19.6 million. Flora & Fauna reported revenue growth of 3.4%, despite cycling strong sales growth in the pcp.
• The core brand margin grew to 58.5%, an increase of 334 basis points versus the corresponding period, which pulled the group gross margin to 55.7%.

Source: Company Reports, Analysis by Kalkine Group

Outlook

The company’s in-store revenue performance has strengthened from H1FY22, and the business is well augmented by solid brands and the ability to scale distribution in critical markets and sales channels. The company revised its revenue guidance for FY22 in the range of $233-$243 million with underlying revenue between $240-$250 million, primarily driven by the solid performance of Sukin and Mineral Fusion but impacted by the deficit of the digital businesses. EBITDA is projected to be $27-$30 million, with underlying EBITDA between $34-$37 million. Moreover, the company is confident that the new manufacturing facility will provide a competitive advantage, unlocking capacity and margin in FY23. The inventory levels are high, driven by manufacturing capacity in the new facility, which is expected to normalise through H1FY23.

Key Risks

The company is exposed to the risk of unexpected movements in foreign exchange markets or commodity prices that may challenge the business's profitability. It is also susceptible to operational risks as its manufacturing and supply chain is concentrated at key points. 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:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

BWX stock price declined significantly after the price broke its crucial support level of AUD 2.40. Prices are now getting support of the downward sloping trend line that might recover the prices in the coming sessions. There is a positive RSI divergence with prices that also support our bullish stance. RSI (14-period) is hovering at extreme oversold region at ~17.19 level that indicates price recovery might occur in the coming sessions.

Stock Recommendation

The stock is trading lower than the average of the 52-week high price of $5.63 and the 52-week low price of $1.76.

The stock has been valued using EV/Sales multiple based relative valuation (on an illustrative basis). The target price so arrived reflects a potential rise of low double-digit (in % terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average), considering continued acceleration in customer acquisition costs that have doubled YoY for digital sales and elevated inventory levels.

Considering the aforementioned factors, and decent outlook, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.365 per share as of 5^th May 2022 (Time: 10:44 AM (GMT+10), Sydney, Australia).

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.

BWX Limited (BWX) is a part of Kalkine’s Global Primary Product

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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