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Warpaint results prove doubters wrong

Strong underlying revenues growth has been topped up by the recent acquisition
April 25, 2018

Cosmetics group Warpaint (W7L) may have only acquired Retra at the end of November, but it contributed £1.3m, or 4 per cent, of the group’s revenues in the year to December 2017. That’s because the new company specialises in gifting, meaning it traditionally has a very strong Christmas period. Warpaint’s investors can therefore look forward to a big second half in the 2018 financial year and beyond.

IC TIP: Buy at 193p

Even without Retra, Warpaint’s top line looked good in 2017. Double-digit revenue growth was reported by both the own-brand (79 per cent of revenues) and close-out (where the group sells excess stock from larger peers) businesses, meaning like-for-like revenues rose by 17 per cent to £31.2m. Management is confident this growth rate will be maintained in 2018 as the discount retailers that sell its products continue to expand.

But top-line growth isn’t cheap and underlying operating expenses rose 33 per cent in 2017 as management expanded the headcount and invested in marketing. The cost of sales is expected to rise further in 2018, but this will be more than mitigated by the expected increase in revenues.

Brokers at Stockdale Securities expect gross margins to widen to near 40 per cent next year to help pre-tax profits and EPS hit £12.5m and 13.6p, respectively (from £7.7m and 9.6p in 2017).

WARPAINT (W7L)   
ORD PRICE:193pMARKET VALUE:£148m
TOUCH:190-195p12-MONTH HIGH:310pLOW: 155p
 2.1%PE RATIO:23
NET ASSET VALUE:52.7p*NET CASH:£2m
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201316.74.41nana
201417.04.12nanil
201522.35.376.83.2
2016 (restated)22.54.405.15.8
201732.56.868.34.0
% change+45+56+64-31
Ex-div:5 Jul   
Payment:20 Jul   
*Includes intangible assets of £18.6m, or 24p a share