When firms arrive on the stock market they often come with strong finances after raising funds in the initial public offering. They can be at their entrepreneurial best with management and staff keen to prove themselves by executing a new strategy for growth.
Targeting accelerated international expansion
Such is the case with Warpaint London (LSE: W7L), the specialist supplier of colour cosmetics and owner of the W7 brand, which issued its full-year results this morning after joining the FTSE AIM market at the end of November 2016.
I think this firm’s plans to accelerate international expansion and the current modest valuation could propel the shares higher – perhaps much higher – during 2017 and beyond.
Warpaint emerged from its IPO debt-free and has around £3.5m cash sitting on its balance sheet. The company reckons that admission to AIM provided the investment to accelerate growth and is already enhancing the profile of the business and its key brand, W7, because of increased public awareness.
As well as talking the talk, the firm is putting the muscle behind its growth ambitions, recruiting an export manager during May 2016 tasked with opening up new territories overseas, a strategy bearing fruit already with the opening of “a number of new accounts.” New brand managers also joined the team to develop the company’s brand portfolio, which as well as W7 includes names such as Outdoor Girl, CopyCat, Smooch and Taxi.
Good progress
The firm is aiming for an internationally recognised brand in W7 and to help that ambition plans to launch new US and China focused e-commerce sites with the ability to transact in local currencies.
Today’s results reveal that the company is already penetrating international markets. During 2016, around 13% of revenue came from the US and 35% or so from the rest of the world, meaning that 48% of the firm’s business originated outside the UK. If things go as planned, I reckon Warpaint London is poised to drive an acceleration in foreign takings from here.
Meanwhile, 2016 was a good trading year for the firm. Revenue grew more than 21% compared to the year before, adjusted earnings per share shot up almost 25% and the operating margin came in at a healthy looking 25%.
A positive outlook
Needless to say, the outlook is positive and City analysts following the firm predict an earnings uplift of 19% this year and 24% during 2018. These are good growth figures, but I think the market may be undervaluing the growth potential on offer here.
In a market where growth shares seem to be popular, as we are seeing now, Warpaint London’s forward valuation for 2018 looks modest. At a share price near 210p, the rating comes in just below 18 and there is a forward dividend on offer yielding just over 1.8%.
To me, Warpaint London looks as if it might still be flying under the radar with many private investors, but there’s a decent showing of director and institutional shareholdings on the register, suggesting that those shareholders think they are onto a good thing. Time will tell whether that’s the case or not, but I think the company is well worth your research now.