Nothing against Bill1703 for posting the Shares piece, but some of Shares' language seems loaded. What makes a brand portfolio "enviable"? I can't find brand rankings for Swallowfield products. I previously linked to a piece by Edmond Jackson about SWL. The only adjective indicating quality he attached to "brand" is "premium", in "An objective is to accelerate growth with innovative new products and wider distribution, and Fish certainly complements The Real Shaving Company, a premium brand acquired in 2015". He describes The Brand Architekts portfolio as "mid-premium". When he says "Frankly, it's impossible to glean exactly what is their competitive position; I'd defy even a marketing specialist to." I think it suggests the portfolio isn't stuffed with brands strong enough to grow or defend market share whatever they're up against. I prefer Jackson's piece, it seems like a more sober assessment.
I can see how readers might reasonably disagree with that point, but is an 18.3% rise (in adjusted pre-tax profit) really better described as an "18.3% surge"?
... says Shares magazine, in yesterday's edition. Seeing as we were talking about articles on SWL... full text below.
Headline: "Swoop on personal care-to-beauty products play for growth and income"
"This is an opportune moment for growth and income investors to swoop on personal care and beauty products supplier Swallowfield (SWL:AIM) at 335p. Chief executive Chris How is leaving after five years and will be replaced by Tim Perman on 1 July. He is expected to continue executing on a successful strategy and perhaps inject fresh ideas into furthering the growth of the £56.5m caps enviable owned brands portfolio.
Somerset-headquartered Swallowfield is a longestablished market leader in the development, formulation, and supply of personal care and beauty products. Customers include many of the worlds leading brands and it boasts a growing portfolio of acquired and organically developed owned brands. These include The Real Shaving Company, Bagsy and Tru.
First half results (27 Feb) revealed an 18.3% surge in adjusted pre-tax profit to £2.9m. Group sales increased modestly to £40m (2017: £39.7m), driven by 25% growth in owned brands, boosted by a successful festive gifting season and with the acquired Dirty Works, Dr. Salts and SuperFacialist brands proving to be star performers. Swallowfields subdued revenue growth was constrained by a 6% decline in its manufacturing arm which spans plastic aerosols and cosmetic pencils to hot pour products. It traded against some tough comparatives.
These demanding comparatives concealed a positive underlying trend with the divisions other customers. Its plastic aerosol products are about to be extended to a second brand, while Swallowfields innovation has helped it bag first orders with a new US global consumer group.
Perman is experienced in beauty brands and marketing and will join from PZ Cussons (PZC). He looks well-equipped to deliver on Chris Hows tried-and-tested strategy and also inherits mens haircare brand Fish, a £3m, earnings enhancing acquisition that looks another excellent addition to the portfolio. Currently sold in Boots, Superdrug, Tesco (TSCO) and Waitrose, Fish is highly complementary to Swallowfields other male grooming brands. In 2017, Fish generated £1.7m revenue and £400,000 of EBITDA, equivalent to an EBITDA margin of 23%. Stockbroker N+1 Singer believes that under Swallowfields ownership, Fish has the potential to be a circa £5m brand with circa 25% EBITDA margins, reflecting the opportunity to expand with new and existing retailer customers.
For the current year to June, N+1 Singer forecasts £5.2m adjusted pre-tax profit (2017: £3.6m) ahead of £6.1m for the 2019 financial year. A 6.2p dividend is on the cards this year ahead of 7.1p next, and the payout is comfortably covered by estimated earnings of 24p and 28.7p respectively."
"Stockwatch: A sound growth company for ISAs and SIPPs" Fri, 2nd March 2018 http://www.iii.co.uk/articles/485741/stockwatch%3A-sound-growth-company-isas-and-sipps
It's by Edmond Jackson, who had great buy and sell calls for Conviviality.
I think it's a good analysis of SWL. He's quite positive about the stock, but not massively so, and he doesn't like the low annual operating margin.
I have a small holding of WSL. I wouldn't call the stock or business wonderful, but the growth prospects seem reasonable and it doesn't look particularly risky, so far as I can tell. Just my best guess and I could be wrong either way.
Interesting post pharma. My take is that Swallowfield is trying to re-position itself from being a contract filler to being the brand owner of personal care products with the much higher margins that can be achieved. I don't think the proliferation of brands is a problem. The sales force can push the extended range at little marginal cost. Most 'marketing' is done by paying for shelf space in supermarkets. I don't think the likes of Gillette and Cussons have a problem with premium-priced products sitting near their products on the shelves. If the premium products do well they'll just buy them out.
The shares have done well but I'm inclined to take some profits after the run they've had.
Having achieved initial success in developing its own brands, I don't understand why the company has spent £11M, admittedly raised through a placing, to buy Brand Architekts. This is a huge amount of money for a company the size of Swallowfield. After the acquisition, Swallowfield will have a real dog's breakfast of brands and not really enough money to do the brands justice through marketing. Even if Swallowfield could compete with brands from multinational cosmetic companies, these multinationals are also customers of Swallowfield so I don't think they will be too happy with the company developing competing brands. Best of luck Swallowfield but I just can't see how this business plan is going to work from a strategic viewpoint although there must be plenty of institutional investors who think it will, judging from the oversubscribed placing.
"The Alternative Investment Market (AIM) has shot up by 20% since the EU referendum. That's the sort of three-month performance we haven't seen since mid-2013, when the ISA exemption was lifted on AIM shares.In this kind of environment it may well ..."
I sold the 2nd 20% yesterday at about 175p, but the volume was not there to sell more. it took me the best part of 4 months to build up my stake in the dark days, when I bought in at a yield of about 8%.
An important question as to what sort of contribution The Real Shaving Company and the new own-brand products will make to earnings over the coming years. I imagine that the new ones will be on sale at Boots, in the first instance, as the recent full year accounts talk of MR being introduced this month in 350 outlets of a Health & Beauty product retailer, and Boots is listed as one of The Real Shaving Company's outlets.
Any thoughts as to what is up, other than the share price?
I felt that selling 20% of mine at 145p was already in frothy territory, but now they are on about 10x 2017 prospective eps or 25x 2015 eps. Do I trust brokers forecasts for 2 years out when there is just the one? Even less than when there are 15!!
I assume marginally below the bad results we expect!In fairness the results are being released in a reasonably timely manner;3 months from yearend is quite prompt.
How easy the company will find it to establish more profitable business remains to be seen.
Revenues marginally below market expectations, full year accounts for the year ended June 22nd 2013 to be published on September 19th. A fair wait there to see how the positives & negatives in the update pan out...
Reading between the lines of this announcement and other industry news, it seemms a top-ten SWL customer has been acquired by a global beast that has taken all sub-contracted goods back in house - a problem for SWL and all other contract fillers. Other contracting-out customers are being found but there is a timimg difference on losing all work from one customer and replacing it with work from new customers.
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