Is this fast-growing small-cap stock the next Unilever plc?

Today, Unilever is one of the UK’s largest companies and a FTSE 100 champion. But in the 1890s, the company was just an upstart with a driven owner and vision to “to make cleanliness commonplace.“

Even the world’s mightiest companies have to start somewhere, and for those investors who manage to get in at the beginning, the returns can be enormous. 

The next Unilever 

Over the past three years, Swallowfield (LSE: SWL) has grown from a tiny micro-cap with huge ambitions, to one of the hottest small-caps on the AIM. 

The company specialises in the production and manufacture of quality personal care and beauty products for leading brands, and business is booming. Thanks to the bolt-on acquisition of Brand Architekts last year, in the year to June 24, revenue expanded 36% to £74m, according to the firm’s full-year results released today. Organic growth, excluding Brand Architekts revenue, rose 8% year-on-year. 

Revenue growth, coupled with higher sales of the company’s own brand products (now 24% of revenues with a higher average margin) helped profit expand 180% year-on-year to £5.6m and adjusted earnings per share lept 40% to 17.7p. Strong cash generation throughout the year helped reduce net debt from £4.3m to £3.6m, including acquisition costs. These impressive trading figures have inspired management to hike the firm’s full-year dividend payout by 68% to 5.2p per share. 

Shares in Swallowfield have added 15% in early deals on the back of today’s results release, and I believe that this is just the beginning of the firm’s growth. 

Gaining size

Since the beginning of 2014, shares in Swallowfield have added 260% as the company’s earnings per share have risen 350% from 3.9p to 17.7p and revenues have expanded by 50%. During this period, management has been working hard to re-ignite growth after several years of stagnation and losses, and it looks as if these efforts have paid off.

In my opinion, now that Swallowfield has woken up, and shown what it is capable of over the past year, the sky is the limit for the company.

Growth through acquisitions 

Swallowfield agreed to buy Brand Architekts for £11m, with a mixture of cash, debt and a placing to raise £8.6m in 2016, following the acquisition of The Real Shaving Company for £1.2m in 2015.

These two deals have boosted growth, and Swallowfield’s strong cash generation and shareholder support indicate that management can continue to roll up other smaller businesses into the group to drive growth in the years ahead. As the group grows through acquisitions, it should be able to take on bigger targets and use its size to extract cost savings and boost margins. 

Still, even without completing any further acquisitions, City analysts are already expecting big things. Analysts have pencilled in earnings per share growth of 36% for fiscal 2018 as near-term costs from the Brand Architekts acquisition fall away. Based on this estimate, the shares trade at a forward P/E of 12.2, which in my view is hardly demanding considering the company’s growth. 

So overall, Swallowfield looks to me to be one of the AIM’s most attractive growth stocks.