Doubts over BWX’s execution powers as slowdown looms

Analysts downgrade the beauty products group, saying its move to raise $23m from shareholders, including Andrew Forrest, is another sign of CEO exit ‘struggles’ and suboptimal execution.

Beauty products seller BWX, owner of Sukin, has slashed earnings expectations.

Beauty and wellness group BWX’s latest move to shore up its balance sheet for tough times, through the support of major shareholders and earnings downgrade has triggered a wave of caution among analysts.

BWX returned from a trading halt this week with an expected earnings downgrade to reveal a “number of actions” to provide a stronger and more sustainable base for future profitability. These included raising $23.2m from new shareholder Andrew Forrest’s Tattarang Ventures and footballer-turned-businessman Jeff Chapman’s Bangarra Group.

Full year earnings before interest and taxes, depreciation and amortisation will likely fall by 76 per cent to $6-10m and underlying EBITDA by 59 per cent to $12-$16m. The group expects to post a loss of $10m-$14m.

It has also flagged FY23 price increases and reduction in trade spend to ensure “consistent sales and cashflow through the year”.

FY22 revenue is expected to come in at $206m, compared to $194.1m in FY21 and underlying revenue is forecast at $212m ($194.3m in FY21).

The group is forecasting FY23 revenue to come in between $260m and $270m with EBITDA recovering to $45m-$49m.

In response on Wednesday, equity research firms Citi and Macquarie slashed price targets and downgraded their ratings on the stock.

Citi’s note said BWX’s downgrade is “arguably its fourth disappointing update” so far this year and points to ongoing struggles following the exit of former chief executive Dave Fenlon.

Mr Fenlon stepped down from his CEO position on March 1, staying on the board until the end of the month before resigning due to his other board commitments.

Analysts say BWX is facing ‘ongoing troubles’ after the exit of former boss Dave Fenlon.

The change in leadership when announced in January led to one of the biggest one-day falls for BWX, as investors expressed their disappointment after three years of a wild ride where Fenlon had led the business past a failed management buyout and one of the most shorted stocks to a growth-oriented natural brands business.

Citi has now downgraded the Sukin and other beauty products maker to neutral, from buy, slashing its target price by 73 per cent to 75c, from $2.76, “given the elevated uncertainty to the company’s medium to longer term outlook following recent suboptimal execution and strategic changes”.

“In our view, executing a turnaround may be more challenging than expected given the combination of a weakening consumer environment and inflationary pressures,” Citi said.

It will “wait for signs of stabilisation and evidence of sustained improvement in operational execution before turning more positive”.

Citi also highlighted the Go-To put option, which is exercisable from late 2024, as an overhang on the balance sheet.

Analysts at Macquarie also downgraded the stock’s rating to neutral from outperform, cutting the price target by 68 per cent to 70c, from $2.20.

“Despite responsiveness to recent headwinds, along with favourable Sukin performance of late (within), we are now cautious on execution given recent challenges,” Macquarie’s note says.

“With BWX guiding to a step up in FY23 EBITDA, based on their recent track record coupled with our conservative economic outlook for discretionary retail, we see potential downside risk to guidance.”

Shares are down 2.9 per cent to 68c at 2.15pm AEST.