Shares in toiletries and cosmetics business BWX Limited (ASX: BWX) dropped 20% this morning after the group behind the Sukin natural beauty brands reported a net profit of $5.4 million on revenues of $67.2 million for the six-month period ending December 31 2017.
The EBITDA or operating income before depreciation, amortisation, acquisition and other restructuring costs came in at $17.5 million which represents a 36.5% increase versus the prior corresponding half.
Net debt reduced by $8.4 million to $48.6 million and looks more than manageable at less than 1.5x normalised annualised EBITDA.
The company will pay a fully franked 3.25 cents per share 9cps) interim dividend on 5.2 cents in earnings per share. When you back out $5.5 million of acquisition costs related to the Andalou Naturals and Nourished Life acquisitions EPS came in at 8.7cps. If you throw the company more rope and back out other "restructuring costs" then EPS comes in at 10.4cps.
This was a complicated half for the retailer impacted as it is by the large acquisitions of North American natural beauty businesses Andalou, Mineral Fusions and Nourished Life.
The company's core business remains the distribution and sale of its Sukin natural beauty products across Australia where sales grew 16.7% to $35.7 million which still represents more than half of total group sales.
Australian supermarket shoppers may have noticed the Sukin brand in their local Coles (operated by Wesfarmers Ltd (ASX: WES)) after the two companies agreed a distribution deal over the period.
U.S. sales now represent around one third of sales at $21.5 million, with the group also looking to break into higher growth overseas markets including the UK and China, among others.
Outlook
One reason causing the big share price falls today is that BWX flagged a $6.5 million hit to revenues in FY 2018 as a result of its decision to "discontinue third party brand representation", which means full year EBITDA guidance is now in the range of $42 million to $46 million.
It is also investing heavily in marketing for its US companies which may pay off in the long term, but isn't improving the mood of short-sighted share traders.
Another reason behind the share price falls is the excessive valuation the stock was trading on prior to today's release. Even after the share price falls it trades on around 32x earnings per share when backing out acquisition costs. Companies routinely back out these kind of costs from profit reports, although for acquisitive-style businesses like BWX the adjusted numbers need to be taken with a pinch of salt.
However, the company is forecasting a far stronger second half of EBITDA growth which might make the valuation more palatable when considering the growth rates and as such the stock could remain volatile out to August 2018.
BWX still retains a potentially strong growth outlook then, but it's hard to see the stock as anything other than fully valued at $6 in my opinion.
