Warpaint cosmetics shares look to be a winner


Sam Bazini left school at 16, started working in a cosmetics warehouse and made money on the side selling make-up in street markets. 

Eoin Macleod moved into the industry even earlier in life, taking on a Saturday job selling cosmetics and perfume at the age of 14.

That was in the 1970s. Today, the pair are joint chief executives of Warpaint, valued on the stock market at more than £170 million. 

Olivia Buckland, pictured, star of the ITV show Love Island, promotes Warpaint’s W7 brand that has a current stock value of more than £170 million

Olivia Buckland, pictured, star of the ITV show Love Island, promotes Warpaint’s W7 brand that has a current stock value of more than £170 million

As owners of 55 per cent of the fast-growing beauty business, Bazini and Macleod are strongly incentivised to take Warpaint from strength to strength. 

The shares are 222½p and should move higher over the next few years. 

Having bumped into one another on the cosmetics circuit for years, Bazini and Macleod went into business together in 1992, initially selling surplus stock by big brands such as Revlon and Max Factor. 

Ten years later, they started their own, W7, named after the London postcode where they were based.

The company, now based in Iver, Buckinghamshire, has grown steadily. 

It has never taken on debt, has remained consistently profitable and developed a reputation for producing high quality cosmetics at far lower cost than mainstream international brands.

W7 products are sold primarily in discount chains, such as B&M, Savers and Peacocks. 

But there is a flourishing e-commerce site too and Warpaint makes ample use of social media, engaging well known figures such as Love Island starlet Olivia Buckland to spread the word online about their cosmetics.

Appealing primarily to 16 to 30-year-olds, Warpaint uses colourful packaging, quirky terminology and cheap prices to distinguish W7 products from the rest of the industry. 

Cinema group lines up a £4.3bn blockbuster deal 

As blockbusters go, Cineworld’s proposed $5.8 billion (£4.3 billion) acquisition of US cinema giant Regal Entertainment is up there with the best.

Regal is almost three times the size of Cineworld and the British chain needs to raise £1.7 billion in a rights issue and take on £3 billion of debt to fund the deal.

Midas recommended Cineworld in March 2015 when the shares were 452¼p. 

By January this year, they were 586½p and, before rumours surfaced about the Regal deal, they had risen to 694p. On Friday, however, they closed at 525p.

Midas verdict: Most brokers believe that Cineworld will be able to make a success of Regal but it will take time. 

In the short term, this deal is so large that it will have to be put to a shareholder vote. Details will only be published in January.

Until then, all but the most impatient should hold on to their stock. 

The company has a staple range of cosmetics but, like fast-fashion clothing chains, it also keeps a close eye on trends and can bring new shades and colours to market extremely quickly. There is even a vegan range, Very Vegan.

Having built up the business over the years, Bazini and Macleod floated it on AIM in November last year, as part of a determined plan to build a global business.

By visiting trade shows across the world and fostering relationships with international distributors, Warpaint had already developed a substantial overseas network and, at the half year, non-UK sales accounted for more than half of group turnover, with particular success in Australia, the US, Holland, Germany and Greece.

At the end of last month, the group took a further step with the £18.2 million acquisition of Retra, a cosmetics group based in Silsden, West Yorkshire, whose brands include Tecnic, Body Collection and ManStuff. 

More than half of Retra’s business is focused on gifts, decoratively packaged cosmetics sold in chains such as Boots, Superdrug and supermarkets, primarily around Christmas. 

Retra also produces beauty products sold under retailers’ own brands, such as Asda and Matalan.

Retra has an overseas arm too, deriving more than 40 per cent of its revenue outside the UK, principally in Europe, although the group has offices in Hong Kong and mainland China, as well as Germany.

The deal makes sense for Warpaint. 

The two companies tend to sell to different retailers and consumers. Retra has a men’s range and its expertise in the gift sector will serve Warpaint well. 

Overall, the transaction should allow Warpaint to broaden its customer range and expand its Christmas sales. The overseas offices are beneficial too, particularly those in Asia.

The acquisition was financed by a £21.2 million share placing, leaving Warpaint with £3 million of extra cash, as Bazini and Macleod are keen to keep the balance sheet strong and healthy.

The company’s financial year ends on December 31 and analysts expect 2017’s sales to increase by more than 80 per cent year-on-year to £50 million, while profits are set to rise by 46 per cent to £9.8 million, with further strong growth anticipated for 2018. 

There is a decent dividend policy too. A 4p payout is pencilled in for 2017, rising to 5.5p next year.

Midas verdict: Warpaint has had a strong start as a publicly quoted company but there should be plenty more growth to come. 

Bazini and Macleod have spent the past 40 years in the cosmetics industry, their strategy is sound and shareholders should reap the rewards. 

Make-up tends to be resistant to economic cycles too, as women like to look good whatever the GDP numbers are saying. At 222½p, the shares are a buy. 

Traded on: AIM Ticker: W7L Contact: warpaintlondonplc.com or 01753 639130 

Patience will pay off for young tech entrepreneurs

One investment makes Aston Martin, pictured, car parts

One investment makes Aston Martin, pictured, car parts

One investment makes Aston Martin, pictured, car parts

There has been a lot of talk about ‘patient capital’ lately, not least in Chancellor Philip Hammond’s Budget last month. 

The phrase trips off the tongue with ease – investing in businesses for the long term to allow them to grow and fulfil their potential – but it can be much harder to put into practice.

Mercia Technologies is a case in point. The group invests in young, innovative companies based in the Midlands, the North and Scotland. 

They are in industries ranging from healthcare to gaming but they all use state-of-the-art technology and have the potential to become much bigger than they are today.

These are precisely the types of companies that should help keep Britain on the front foot in the digital era and shareholders in Mercia are contributing to their ultimate success. 

They are not having an easy time, however, as the short-term performance of the stock has been disappointing. 

Mercia joined Aim in December 2014 at 50p and Midas recommended the shares two years later, by which time they had fallen to 44½p. Today, the price is 36p.

The fall is unjustified. Interim results last week showed that businesses in Mercia’s stable are doing well and should do even better next year and beyond.

Mercia’s activities are divided into two related areas. First, it oversees a collection of around 350 junior businesses, which are funded by external investors such as wealthy individuals, regional funds and the Government. 

Mercia monitors these firms closely, supports them and receives a fee for doing so. It then selects the most promising candidates and invests in them directly.

There are now 25 such businesses, expected to increase to around 40. The selection includes nDreams, a virtual reality pioneer, Impression Technologies, which designs high-strength, lightweight aluminium parts for cars such as Aston Martins, and VirtTrade, which has turned the traditional schoolboy habit of card collecting and trading into a digital game.

Last week’s figures – for the six months to 30 September – revealed that Mercia’s assets rose almost 8 per cent to £123 million year-on-year. Yet the company is valued on the stock market at £108 million.

The discount is unfair and it should unwind, as Mercia adds to its portfolio and sells some businesses at a profit.

Midas verdict: A falling share price is particularly unfortunate when Mercia is trying to help the sorts of companies that the Government most wants to support. 

Shareholders should keep the faith. New investors with a long-term horizon may also consider buying shares at 36p. 

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