Aussie skincare group faces glowing future


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Key statistics: ASX: BWX

Closing share price 11.04.17: $4.890 52-week high: $5.70 52-week low: $4.850 Most recent dividend: 2.5c Annual dividend yield: 1.47% Franking: 100%

BWX Ltd is a small Melbourne-based company that owns a range of skin and hair care brands and manufactures cosmetics for third parties.

Aussie skincare group faces glowing future

Shares in BWX began trading on the ASX in November 2015 at $2.12. They have doubled since, and we think there's more good news ahead.

BWX derives most of its earnings from its flagship Sukin range of "natural" skincare products.

Australia was an early adopter of natural skincare, and Sukin was an early mover into this market. It is a product sold in pharmacies but not supermarkets.

Following several years of strong growth, Sukin is the No. 1 selling skincare brand in Australian pharmacies, having displaced globally recognised brands for the title.

This market segment continues to grow strongly as consumers become more attuned to the merits of natural products, and BWX has worked to extend the Sukin range, add new outlets and improve sales execution.

In the first half of 2016-17 Sukin's domestic sales grew by an extraordinary 48%.

While BWX manufactures the Sukin range itself, the capital intensity of the business is surprisingly low and these very strong growth rates have been achieved with minimal investment in new capital.

BWX has the opportunity to replicate some of its Australian success in much larger overseas markets. It is working to have the Sukin range distributed in several overseas markets and the early signs are encouraging.

In the UK the leading health retailer Holland & Barrett has sold a small selection of Sukin products in 142 stores, and recently decided to offer a wider range throughout its 765-store network.

Similarly, Boots UK sells Sukin in over 160 stores, and there is potential to extend it into its 2500-strong retail network.

It is clearly difficult at this stage to gauge the ultimate success of Sukin in these markets, so any valuation analysis needs to contemplate a wide range of possible outcomes.

One thing is clear though - the top end of that range is well beyond anything currently priced into BWX shares.

A combination of favourable market trends, the right product, good execution and a global opportunity could make BWX a much larger business than it is today.

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Tim Kelley is Tim Kelley is director, senior analyst and head of quantitative research at Montgomery Investment Management.