Tomorrow morning will see the announcement of the 2023 Final Results for Warpaint London (LON:W7L) – they will show a significant advance in both sales and profits for that year.

Yesterday the group’s shares leapt over 4% to trade 18p higher to close at 465p, after touching 474p at one stage.

Although already rated on some 26 times estimated 2023 earnings, the shares would see many professional investors shying away – especially after the stock has risen from 365p on Friday 5^th April – too far, too fast, perhaps.

Inevitably they will ease back to trade again within the 350p to 425p price range.

And that is when more risk tolerant and patient investors should be taking their positions in this group’s growth equity.

The Business

Founded in 1992, the Iver-based business provides colour cosmetics.

It operates through two segments, Branded and Close-Out.

The £363m capitalised company offers its cosmetic skincare products under the W7, Technic, Man’stuff, Body Collection, Very Vegan, and Chit Chat brand names.

It also provides supply chain management services.

The company sells its products to retailers, distributors, supermarkets, and retail chains, as well as through online channels.

The business operates in the UK, the rest of Europe, Spain, Denmark, the USA, Australia, New Zealand, and internationally.

The Main Brands

W7, which represents 55% of revenue, is a design-focused cosmetic brand with a focus on the 16-34 age range, delivering high-quality cosmetics at affordable prices.

It is sold in the UK primarily to major retailers such as Tesco and Boots, and internationally to local distributors or retail chains such as Normal (DK) and Five Below (US).

W7 is also available online via its own website, Amazon (US), Tmall and Xiaohongshu (China).

The Technic brand, which represents 36% of revenue, is sold in the UK and continental Europe with a significant focus on the gifting market, principally for high street retailers and supermarkets.

In addition, Warpaint supplies own-brand white-label cosmetics produced for several major high street retailers, which represents around 4% of the group’s revenues.

It also sells cosmetics using its other brand names of Man’stuff, Body Collection, and Chit Chat, each targeting a different demographic.

The group is geographically diverse, with its home market representing 43% of revenue, continental Europe 44%, the US 8% and its products that are sold in a further 43 markets represent some 5% of revenue.

Recent Trading Update

Two weeks ago, the group issued an Update on its trading in the year to end December 2023, together with a Q1 report.

Following continued strong trading in the final quarter of last year, sales and profit before tax for 2023 had exceeded previous expectations. 

It reported that the strong trading had continued in Q1 2024, with sales showing a record first quarter at £23.5m, some 28% ahead, with margins continuing to be robust and ahead of those achieved in 2023. 

Analyst View

At Shore Capital Markets their analysts, Darren Shirley and Clive Black, are looking forward to the group publishing its 2023 results on Wednesday, upon which they will present a ‘comprehensive review’ of their forecasts.

Their estimates for the year to end December 2023 were for revenues of £89.5m (£64.0m), with adjusted pre-tax profits leaping ahead to £18.0m (£10.0m), taking earnings up to 18.0p (11.2p) and increasing its dividend to 11.5p (7.1p) per share.

Ahead of the results the analysts are going for sales rising to £95.0m this year and then £104.0m next year, lifting profits to £19.1m then £21.0m, with earnings of 18.6p then 20.5p and dividends of 11.6p then 12.8p per share respectively.

If that occurs, then the group will have shown a strong progression over those five years.

My View

Despite its very high price-to earnings ratio, I am impressed that the group has no debt and boasts around £7.5m of cash in its balance sheet.

Sensibly it outsources its manufacturing requirement to ensure competitive pricing, rapid production and thereby creating ‘an asset-light structure.’

That enables it to remain focused on its gross margin, its cash generation and maintaining its impressive balance sheet.

If you are a patient investor in Warpaint, buying upon any dips in the price, then I believe that you will be onto a winner.

The FTSE 100 surged higher on Monday in a strong rally, which took the index above the record closing high of 8,015.

London’s leading index has traded above this intraday recently but hasn’t yet closed above the record high set in February 2023. Traders will watch closely to see if Monday’s cyclical-led rally can hold and ensure the FTSE 100 joins other major indices that have broken to new highs in 2024.

The FTSE 100’s defensive nature is well documented, and its weighting towards commodities such as oil and banks helped the index outperform over the past week as US and European stocks have suffered amid rising geopolitical risks.

This built a base for the index to launch an attack at all-time highs on Monday as tensions eased and more cyclical names rebounded in a broad rally.

“The FTSE 100 bounced back strongly on Monday amid relief that tensions in the Middle East seem to have been contained for now,” says AJ Bell investment director Russ Mould.

“Travel and retail stocks were among the gainers on the FTSE 100, with precious metals miner Fresnillo the only stock showing notable weakness, with gold and silver prices dipping as demand for safe havens eased.”

Fresnillo was one of only a few decliners on Monday as the FTSE 100 traded at 8,028, up 1.6% on the day.

Housebuilders

Housebuilders were among the best performers after Rightmove said UK house prices jumped and average prices were again within touching distance of record highs.

Persimmon rose 2.7% and Taylor Wimpey built 1.2%.

Rightmove explained that higher-valued properties led the charge as many still struggled with affordability.

“The top-of-the-ladder sector continues to drive pricing activity at the start of the year, with movers in this sector typically less sensitive to higher mortgage rates, and more equity rich, contributing to their ability to move. While some buyers, across all sectors, will feel that their affordability has improved compared to last year due to wage growth and stable house prices, others will be more impacted by cost-of-living challenges and stickier than expected high mortgage rates,” said Tim Bannister Rightmove’s Director of Property Science

“Despite these factors,  it has been a positive start to the year in comparison to the more muted start to 2023. However, agents report that the market remains very price-sensitive, and despite the current optimism, these are not the conditions to support substantial price growth. Sellers who are keen to secure their sale will still need to price realistically for their local market and avoid being overambitious at the start of marketing to give themselves the best chance of finding a buyer.”

Ocado

Ocado was the top riser at the time of writing amid reports shareholders are pushing for the company to switch its listing to the US. Ocado shares were 4% to the good after suggestions the premium grocery delivery and food distribution technology could leave London for the US to seek a better valuation.

Ocado would be the latest in a long line of companies either moving or signalling a potential to move to the US as UK stocks trade at discounts to peers over the pond.

“Ocado is the latest name to be banded around as a potential defector from the UK stock market. Weekend reports suggest certain shareholders want it to switch listing venue to the US, a move that others have made to achieve a higher valuation,” Russ Mould said.

“While Ocado is best known to the UK public for its grocery delivery service, the company’s future lies in the provision of technology and robotic systems to power grocery warehouses. It has a partnership in the US with Kroger, one of America’s largest grocery retailers, and that association could help it appeal to investors in the country.

“Ocado would no doubt dearly love to be seen as a tech company, as that would not only help its aspirations to be a much bigger player in the grocery services industry, but also to get investors to ascribe a different and potentially higher earnings multiple to its stock.”

In the last year or two this £35m capitalised group has been facing some uphill struggles and the 2023 Final Results, which were due to be announced tomorrow, have been delayed.

The questions in the market are just what could have changed since the end January Trading Update?

The Business

Founded in 1991, Maintel (LON:MAI) floated on the AIM market in 2004 and has subsequently grown both organically and through strategic acquisition.

Today the company is leading provider of cloud, network and security managed communications services, with almost 600 staff operating from five UK office locations, from where they service customers globally, through both direct relationships and via strategic partners. 

It is a fast-growing provider of such services for the private and public sectors, securely connecting with its customers in the office, on the move and in the cloud to companies nationwide and internationally.

The group’s core expertise encompasses unified communications, contact centre solutions, workforce optimisation, networking and security, mobile and connectivity services.

Recent Trading Update

It is apparent that the company made significant progress in profit generation and working capital management during the last year.

It has embedded margin improvements in 2023, delivered cost structure improvements and continues its focus on streamlining operations, evolving the market and product strategy, which underpins its sustainable future profitability.

The company has declared that its next generation products and services continue to be the investment focus, along with exploring the role of new technology and customer service delivery.

Converting its solid pipeline of opportunities in both the public and private sectors and with a leaner organisation, the Board is confident that the company starts the new financial year with solid foundations to deliver revenue, profitability and cash generation in line with market expectations.

CEO Carol Thompson stated that:

“2023 has been a challenging year, following on from 3 previous challenging years; as such to have the Maintel team support, deliver and build on the changes in focus, operational and cost effectiveness, is an outcome one can only have hoped for when we started on this journey.

The team are positive, energised and keen to engage with clients, both existing and new. 

Post pandemic the rate of technological change in our markets is significant, with changes in business working practices and how and where they use and locate their resources.

This is both exciting and challenging; but change is where opportunity lies, and we intend to be part of that new generation of service to clients.”

Results Delayed to Wednesday 1^st May

The date of the final results has been slightly delayed due to increased audit work driven by regulatory changes and temporary resource constraints.

However, we now know that the group is on the road to recovery, last week it guided that it still expects to report revenues amounting to £101.3m and adjusted EBITDA of £9.1m for 2023, driven largely by an acceleration in trading momentum during that year.

Broker’s View

Analysts Andrew Darley and Kimberley Carstens at Cavendish Capital Markets have estimates for the year to end December 2023 for £101.0m (£91.0m) revenues, with adjusted pre-tax profits of £4.7m (£0.0m), with earnings coming in at around 26.6p (loss 6.4p) per share.

For the current year they go for £103.0m sales, £7.2m profits and 32.9p in earnings per share.

The year to end December 2025, sees the analysts pencilling in £108.0m turnover, £9.3m profits and 41.1p in earnings.

They have a Price Objective of 400p on the shares.

Shares In Issue

There are some 14.36m shares in issue.

Directors hold around 25% of the equity, with John Booth owning 3.5m shares (24.37%).

Other holders of significance include Harwood Capital (18.39%), JA Spens (16.20%), AJ McCaffery (11.97%), Herald Investment Trust (5.60%), Elitetele.com (5.00)%), Hargreaves Lansdown (3.21%) and Barclays Wealth (3.08%).

My View – Heading To 325p

I don’t see any reason for concern in the delay of the results, the group is not unlike a host of other PLC’s suffering late ‘signing-off’ of corporate statements.

On the basis of the Cavendish analysis, this group’s shares are undervalued, in my opinion.

They touched 269.90p two weeks ago, before easing back to the current 245p, at which level they would be trading on just over 9 times historic and a mere 7.45 times current year earnings.

I believe that positive news on Wednesday of next week could prove to be a progressive platform from which they will rise to over 325p in the short term.

Ahead of Lloyds results due for release this week, a Pepperstone analyst has said the Lloyds share price is unlikely to hit £1 in 2024.

Last week, we outlined the key metrics Lloyds investors should look out for in its Q1 2024 update, including Net interest margin and provisions for bad debts.

However, the wider economic backdrop is likely to cap Lloyds shares in the coming year explains Capital.com analyst Daniela Hathorn, in her own words:

“Shares of Lloyds Banking Group have struggled to find their footing in the past, but the company’s strong fundamentals have made it an attractive investment, and investors are finally catching on. The share price surpassed the 50 pence mark at the end of March for the first time in over a year as appetite for stocks has increased with resilient macroeconomic data. But investors want to know if shares of Lloyds can trade back at £1, a level not seen since 2008.

“Fundamentally, the bank is strong, with a widely recognisable brand and a large customer base. Earnings have remained robust, with post-tax profits at £5.5bn and £3.9bn in 2023 and 2022 respectively. Interest income – a key revenue source for banks – has grown consistently for the past 5 years, increasing 30% from 2019 to 2023. 

“Even so, market sentiment has been holding the share price back, resulting in a price-to-earnings (P/E) ratio that makes the company look undervalued. But appetite in the UK banking sector seems to be turning. Interest rates are expected to start dropping soon, which could be a headwind for banks, but it is also expected to boost the wider market, which is likely to reflect on Lloyds share price eventually.  

“The issue doesn’t seem to be so much with the company’s fundamentals, but rather with investor concerns about loan defaults if the economy continues to perform weakly. After all, the GDP data confirmed that the UK economy entered a technical recession in the second half of 2023, with two consecutive quarters of negative growth.

“And while growth is struggling, inflation continues to be an issue, especially in the services sector, where there are still upward pressures on wages. Markets now only have one rate cut fully priced in for 2024, a stark contrast to where the year started. 

“So, there is reason to believe that investors are nervous about the long-term outlook for the UK economy, and that has an impact on consumers and their ability to pay back loans. For this reason, the likelihood of getting Lloyds shares back up to £1 is pretty slim until the economic uncertainty clears up, and that is unlikely to happen this year. 

While Hathorn mentions the constraints on banks in terms of earnings multiples, it’s interesting to note that UK-focused banks have consistently traded at a discount to book value over many years, effectively valuing the stock at less than the sum of their assets, including loan books and other investments. 

This represents the wider negative sentiment surrounding UK assets, which alleviated, would have more of an impact on the Lloyds shares price than fractional changes in net interest margins.

Lloyds will report Q1 2024 results Wednesday 24th April.