Brokers trim price targets as BWX outlines its strategic direction for core brands.
-BWX reveals margin guidance ahead of expectations
-Strategic review of the digital business
-Medium-term revenue targets lowered
-Balance sheet concerns
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Following the removal of unnecessary costs and disposal of non-core investments,
The broker formed this view following a strategy day held at the company's new manufacturing facility in Clayton, which included a strategic direction for core brands and disclosure of medium-term margin targets.
Clayton is 2.5 times the size of the previous Dandenong facility and is expected to reduce the cost per online order to less than
The company's operations include manufacturing, wholesale sale and development of natural body, hair and skin care products in
Management's long-term earnings (EBITDA) margin guidance of 22% proved better than the consensus forecast. Even so, according to Citi, this outcome was offset after the company stepped back from medium-term revenue targets for its three markets.
In a discussion around strategic priorities, BWX management flagged cost-out initiatives of -
Maybe some of these initiatives are paramount as Jarden is concerned about the balance sheet, with a potential
The analyst is also increasingly pessimistic about a recovery in top-line growth and margin expansion given the inflationary environment. It's believed any cost-out program benefits will be eaten away by higher costs elsewhere in the business.
Because of these concerns and the lack of a more specific plan regarding offshore expansion, Jarden has downgraded its rating to Underweight from Overweight and reduced its 12-month target price to
The lower target is due to lower multiples applied by Jarden, not one of the seven brokers updated daily in the FNArena database, to other ASX-listed offshore growth stories such as
The reaction within the FNArena database to BWX's strategy day was less severe, with the average target price set by three Buy-rated (or equivalent) brokers reduced by just over -6% to
Leverage
Given the balance sheet concerns raised by Jarden it may be timely to review management's plans detailed at the strategy day to reduce gearing. The metric is expected to fall significantly over FY23 compared to FY22 driven by an unwinding of inventory as the new manufacturing facility scales up.
In addition, higher earnings, no planned major projects and a reduced focus on acquisitions are expected to benefit.
Citi also believes BWX may benefit from divesting its digital platforms for several reasons including a lack of scale and increasing customer acquisition costs. It's estimated the digital businesses could be worth between
Delayed revenue targets
BWX has delayed its US skincare revenue target of
Citi believes these amended target dates reflect covid-related rollout delays and other distractions (online,
Nonetheless, the broker maintains its Buy rating as Sukin's value offering is likely to appeal in a high inflation environment. Further, a consumer survey conducted by Citi revealed increased natural skincare consumption during covid, which is expected to be sustained once conditions normalise.
Apart from an appealing current valuation, the analyst also sees distribution growth opportunities in the US.
Other broker views
After Macquarie adjusts its model for BWX's updated long-term targets, immaterial changes are made to the broker's earnings forecasts, while its target price falls to
The broker retains its Buy rating and lowers its target price to
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