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Warpaint is worth the expense

The colour cosmetics maker is looking to expand its business after it listed on Aim
May 11, 2017

Cosmetics maker Warpaint (W7L) posted solid maiden results after listing on Aim in November. The company sells budget-friendly, own-brand products under the name W7, representing 80 per cent of ongoing revenue, and a close-out division which buys and sells excess cosmetics stock to the high street. The latter was a separate entity prior to the float and so the results below are pro forma, rather than statutory, which breaks our usual rules but better reflects the performance of the combined business.

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Flagship brand W7 outsources the manufacturing of its own designs to third-party companies, which management says gives Warpaint the option to move somewhere else if it can find a more competitive price. This helped to insulate the (pro forma) 25 per cent operating margin from a Brexit-related downturn, when the company switched some of its eyeshadow and foundation sourcing for a better deal.

Some £800,000 of the IPO proceeds were invested into marketing and branded products. In keeping with the healthy lifestyle trend, a Very Vegan range of 30 W7 products free from animal-derived ingredients will be launched later this year.

Broker Stockdale forecasts pre-tax profits of £7.6m for 2017 with EPS of 9.4p, rising to £9.5m and 11.9p in 2018 (from £6.7m and 8.6p in 2016).

WARPAINT (W7L)
ORD PRICE:212pMARKET VALUE:£136m
TOUCH:208-215p12-MONTH HIGH:229pLOW: 108p
DIVIDEND YIELD:2.9%PE RATIO:36
NET ASSET VALUE:22pNET CASH:£3.5m

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2013*16.74.41nanil
2014*17.04.12nanil
2015*22.35.376.83.2
2016*27.04.405.86.1
% change+21-18-14+91

Ex-div: 06 Jul

Payment: 21 Jul

*Pro forma figures (see text)