Revolution Beauty (REVB ) is a relatively young – yet highly innovative & truly disruptive - FMCG brand founded in 2014 by CEO Adam Minto & Exec chairman Tom Allsworth.
Indeed its affordable cosmetics and hair/skincare products have delivered astounding success. With house broker Zeus Capital forecasting £22.5m of adjusted EBITDA on sales of £197.9m for the y/e Feb’22, rising to £37.5m & £272.2m only 2 years later.
Albeit this is just the ‘tip of the proverbial lipstick tube’. After raising £300m at 160p/share in July, I believe the group is on track to more than double revenues over the next 5 years, and possible much higher.
In fact Adam Minto’s more ambitious goal is to exceed £1bn over a similar timeframe. Which using sector multiples (ie 20x EV/EBITDA) would theoretically produce a 10 fold shareholder return, assuming 20% EBITDA margins reflecting enhanced operating leverage.
Prior to the IPO, the priority was to invest in top line growth. However once extra capital became available, it was always the Board’s intention to operate their own factory and R&D facility. Especially for the relatively newer hair/skincare brands, currently exclusively made by Tom Allsworth’s sister firm Medichem, situated nearby to #REVB’s global HQ in Queenborough, Kent.
This morning the planned marriage was consummated, with REVB exercising its call option to acquire Medichem (see clients below) for £23m in cash (Est fwd PER <10x). To be paid £7m immediately, with the rest split equally over 4 years (ie £4m pa).
For me, the deal ticks all the right boxes: Not only providing the group with greater supply chain flexibility & control in a post-pandemic world; but also adding R&D expertise, which should further accelerate product development & speed to market - An important KPI for today’s 24-7 fashion rich younger generation – characterised by rapidly changing tastes & trends, which are hugely influenced by high-profile, social media endorsers.
Moreover from a numbers perspective, the financials stack up too.
With the acquisition said to be “significantly earnings enhancing” for the y/e FY23, whilst comfortably funded from existing resources.
Zeus Capital have a DCF derived valuation of 201p/share, and interims are out on 24th November.
The future's bright, the future's #REVB.
