How Can BWX Share Price be a Beneficiary of COVID-19 Driven Crisis?

Summary

• COVID-19 induced lockdowns led to an unexpected increase in skin and beauty products. The demand benefitted the skin and haircare products manufacturer BWX Limited.
• The Company responded to the surge in demand by ramping up manufacturing capacity and shifting attention to other in-demand products including hand sanitisers.
• The Company had an impressive FY2020 led by significant growth in Sukin and Nourished Life brands (preliminary and unaudited basis). BWX is well-positioned to achieve revenue and EBITDA growth of 10% or higher in FY2021.
• BWX recently completed a A$40 million Placement and announced SPP to raise another A$10 million. The proceeds would help improve the manufacturing capability and would safeguard its supply chain.

Victoria-headquartered BWX Limited (ASX:BWX) is a leading wellness company. The Company engages in the production and marketing of skincare and haircare products. BWX has five market-leading brands that cover six personal care groups.

The coronavirus pandemic, with all the havoc it has created worldwide, did favourable impact a few industries like healthcare, technology, and beauty products leading to the impressive performance of stocks within these industries. BWX Limited is one such beneficiary and the Company, via proactive measures, ensured that it could meet the unanticipated surge in demand for its products amid the economic turmoil.

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BWX shares have delivered an impressive return of ~98% in the last 12 months. In the previous three months, the stock delivered a return of 21.91%. By the market closure on 20 July 2020, BWX shares settled at A$4.270, down 1.613%. BWX has a market cap of A$539.24 million and ~124.25 million shares outstanding.

The surge in share price on 17 July 2020 (up 18.579%) was influenced by the successful completion of A$40 million Placement.

A$40 million Institutional Placement:

On 17 July 2020, the Company announced the completion of the fully underwritten institutional Placement under which it raised A$40 million by issuing around 11.8 million new fully paid ordinary shares in BWX. Each share was issued at A$3.40 per share.

The Placement received strong support from the existing offshore and Australian institutional shareholders, along with other institutional investors.

The proceeds via Placement would be used to bolster its manufacturing capability and are anticipated to safeguard its supply chain from the uncertainties in the future by investing ~A$33.7 million in a new Operations Facility. The fund would also reinforce the balance sheet.

Announced Non-Underwritten Share Purchase Plan:

Following the Placement completion, BWX would provide qualified shareholders in Australian and New Zealand with an opportunity to apply for ~A$30,000 worth of new fully-paid ordinary share at the same price as that of the Placement to raise A$10 million.

BWX’s position during COVID-19 period:

BWX is well-positioned for the long-term. On a preliminary and unaudited basis, BWX provided the FY20 guidance in challenging conditions. The revenue improved by 25% to A$187.6 million, EBITDA by 30% to A$30.9 million, on a post-AASB basis, and by A$27.5 million on a pre-AASB 16 basis. The statutory profit was up 48% at A$14.1 million.

During the period, the Company used its Australian manufacturing facility and collaborated with its US-based manufacturing partners to promptly respond to the pandemic, ramping up production to fulfil increased demand for hygiene and personal care products.

Also, the Company followed disciplined working capital management which resulted in improved net debt of A$32 million by the end of FY2020.

COVID-19 Specific Actions:

• Disciplined working capital management.
• Protected supply chain and pivoting production.
• Assessment of Domestic and offshore brand health.
• Focus on core businesses that supported essential services.
• Alignment of category and range offering mix to changing consumer demand during COVID-19.

The Outcome of the above actions was that:

• BWX could maintain its working capital.
• Improvement was seen in the cash position.
• Responsive supply chain management caused regular supply levels being retained to customers.
• Sales of brands like Sukin, Andalou Naturals, Mineral Fusion, and Nourished Life increased.
• Maintaining a focus on core business providing essential services enabled the Company to work with the retail customers to supply key products continuously. It also supported improved direct-to-consumer volumes.
• Through the expansion, the Company was able to speed up the launch of hand sanitiser to encourage sales. At present, it has now become part of the core range. Increased operational efficiency helped in meeting the increased demand for the key products.

A Glance at BWX’s Brands:

BWX’s brands are market-leading brands, democratising the natural beauty industry. Thus, making natural beauty as the only choice for every person. Some of its leading brands include:

• Sukin
• ANDALOU
• USPA
• MINERAL FUSION
• Nourished Life

Brand Performance:

The Company noted a continued market share gains with growth in revenue across all core brands. The revenue from its Sukin brand grew significantly by +55%, influenced by the launch in the US along with the profits from the present and new strategic partnerships.

The Nourished Life brand also witnessed considerable gains in 2H FY2020. The revenue from this brand increased +26% during 2H FY2020 as compared to the previous corresponding period.

A Peek into BWX’s New Operations Facility:

New operations and manufacturing facility of BWX represent a transformational growth prospect and considerable addition to its previous three-year strategic plan which is expected to provide:

• Growth opportunities and attractive returns.
• Manufacturing effectiveness.
• Risk mitigation.

Three-Year Strategic Plan:

The Company is focused on four of its strategic pillars. BWX is committed to the ongoing business improvements that help revenue growth to provide a sustainable & integrated business into the future. These four pillars include:

• Connecting to customers with smart marketing investment, education, along with improved direct-to-consumer channels.
• Invest via the addition of capability and more sustainable group practices
• Go Global, Go Mainstream via balanced revenue spread in key markets. At the same time, using macro-economic tailwinds to support growth.
• Get Clean and Get Healthy with the 3-year plan built from analytical visions and operational strategies.

Outlook:

In FY2021, the Company expects its revenue and EBITDA growth of 10% or above. BWX anticipates that by December 2021, the new operations facility would get completed. It has a four-year payback period. The Company feels that the New Operations Facility will support in delivering incremental growth, as mentioned in its three years strategic plan.

In FY2021, the Company expects a further boost to NPAT via a one-off benefit of A$4.5 million after the deal on the final consideration payable as per the compensation plan pertaining to the Andalou Naturals business with no effect on the carrying value of the Andalou Naturals brand.