Having invested for more than 30 years, I'm not often surprised by the markets. But this morning even my eyebrows were a little raised when Revolution Beauty (REVB)'s shares fell 55% on the back of a 7% revenue downgrade and a 38% EBITDA downgrade for FY 2023. It's now guiding to sales of £215m-£225m, against £194m last year, and EBITDA of £18m-£20m against £22m last year.
On the face of it that leaves the shares, at 27p, looking ridiculously cheap EV/sales and EBITDA multiples of less than 0.5x and 5.5x respectively - a 70% discount to the branded cosmetics sector.
So, what's spooked investors? Well firstly, trading has softened over the past few months, due to retailers including Target and Ultra Beauty destocking, closure of the Russia/Ukraine business which meant a £9m revenue hit, higher freight, raw materials and staff costs, and slower direct-to-consumer (DTC) volumes. That's all compounded by the cost of living crisis, which means some less well-off consumers may be cutting back on discretionary spend.
Despite all this, the top line is still set to expand 15%-20% (ex Russia/Ukraine) this year and the company will still be profitable, with the seasonally stronger second half meaning its likely to hit broker Zeus's 1.5p EPS target.
Elsewhere, higher levels of inventory, working capital and capex had pushed up net debt to £21.2m by the end of July 2022. Whilst not ideal, the group has access to a £40m banking facility, which should be sufficient to cover its future cashflow needs.
Lastly, the FY 2022 results will now be published on 30th August - against the previous expectation of 4th August - reflecting delays completing the statutory audit. Nothing material has been raised by the accountants, however.
CEO Adam Minto commented: “While the Group has been impacted by near-term economic and political headwinds, we remain confident in the strength of our long-term strategy and the significant growth opportunities."
"We have continued to deliver against our omni-channel strategy and are now in 15,000 stores worldwide. This has been achieved by providing customers with the highest quality beauty products at the best possible price.”
In terms of intrinsic worth - and assuming things go to plan - then I would rate the stock on at least a 10x-15x FY24 EBITDA multiple. Adjusting for net debt, that would generate a theoretical valuation of 60p-95p a share.