Warpaint London Plc (W7L) is a colour cosmetics business, based in Iver, Bucks. It is made up of two divisions: close-out and own-brand. The second and larger own-brand division consists primarily of the Group’s flagship brand, W7 – an extremely creative, design-focused cosmetic brand proposition with a focus on the 16-30 age range, delivering high-quality cosmetics at affordable prices. The W7 brand has grown organically since its inception in 2002 and now contains over 700 items which are sold into high street retailers and independent beauty shops across the UK, Europe, Australia and the US. In 2017, W7 was supplied in more than 60 countries. In 2017 Warpaint completed the acquisition of Retra Holdings Limited, a UK colour cosmetics business with a significant focus on the gifting market, principally for high street retailers and supermarkets including Boots, Superdrug and Asda. Retra owns three major brands: Technic, Body Collection and Man’stuff, in addition to supplying white label cosmetics produced for several major high street retailers including Asda and Matalan.
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On April 25th2018, W7L announced audited FY results for the year ended 31 Dec 2017. In it’s first full year as an AIM listed company, W7L reported a 15.6% hike in proforma revenues to £31.2m, raised proforma adjusted EPS by 8% to 9.4p and paid a final dividend of 2.6p per share. Subsequently in the AGM statement published on June 12th 2018, Chairman Clive Garston confirmed that the Company continued to trade in line with expectations ..”and that the outlook for the rest of the year is encouraging.” “I am particularly pleased to report that our order book for Christmas sales is ahead of last year, both for W7 and the Retra brands… we look forward to providing a further update at the time of the release of our interim results in September 2018.” In a note published on June 13th2018, well-respected research house Hardman & Co pointed out that the company had made considerable progress since the acquisition of Retra, and was “well positioned to maximise the benefit of the additional assets.”Hardman added: “Warpaint has never made a loss and has a very healthy profit margin; it is also net debt-free, has a much faster growth rate than the colour cosmetics sector, and has a very attractive RoE.”
Key VectorVest metrics first highlighted flagged up W7L potential in late April when the RT (Relative Timing) metric first broke above 1, providing early indication of more to come from the steadily rising share price. (RT is a fast, smart, accurate indicator of a stock’s price trend). Today at 235p the W7L RT metric still logs a rating of 1.42, which is excellent on a scale of 0.00 – 2.00. Other high scoring metrics include a GRT (Earnings Growth Rate) of 24%, which VectorVest also considers excellent. Although clearly on an upward trajectory, VectorVest still sees more to come, with a valuation of 279p.
A weekly chart of W7L.L is shown above in my normal format. Over the past year the share has been revalued as shown by the green line study in the price window. The share is on a Buy recommendation on VectorVest and since the low point in September 2017 has charted several rising lows which is bullish price action. The initial target from what is known as a “measured move” in technical analysis is similar to the VectorVest valuation at approximately 280p.
Summary: Fundamentally W7L ticks all the boxes for a niche growth stock, with strong trading continuing all the way from the results statement to the AGM this month. A RS (Relative Safety) rating of 0.88 may deter less adventurous investors, but with a raft of solid fundamentals supported by a bullish charting configuration, VectorVest rates W7L as an exciting growth prospect. Buy.
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