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Astute management and acquisitions put a spring in Swallowfield's steps

Publication Date: 02 Jul 2018 - By Gaurav Sharma (Associate Editor ReachX) By Gaurav Sharma (Associate Editor ReachX)
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Equity Fundamental Equity EU ex-UK UK Consumer

In many ways, boutique personal care and beauty products maker Swallowfield (LON: SWL) offers the investor community plenty of food for thought. An examination of the company’s share price suggests it has more than tripled over the last three years on one hand, yet has slipped 6% year-till-date on the other. 

The company certainly has pedigree, if that is a consideration factor. It has been around since 1876, and launched its first consumer aerosol products in the 1950s. Cosmetic pencils were added to its stable of products in the 1970s and pump-based bath and hair products followed in the 1980s, thereby cementing its position as a personal care products innovator going back decades. 

Apart from making products under its own brand umbrella, an avenue that represents a quarter of the £56m market cap firm's business, Swallowfield also has the world’s leading beauty and care brands as steady clientele for whom it formulates and manufactures products under licence. 

Much of the firm's market kudos has of late stemmed from the focus of the current management – in place since 2014 – on exceeding historical profit levels and shareholder returns. In its latest financials, Swallowfield increased underlying operating profits to £3.4m from £3.07m for the half-year to 6 January, 2018. 

It remains a dividend paying stock, with its dividend per share having been recently raised to 2p from 1.7p. Strategic acquisitions have also strengthened its case for being an interesting stock to watch. 

In Q1 2018, it acquired male grooming products brand Fish to its portfolio. At the time of the acquisition, Chris How, Chief Executive of Swallowfield, said Fish’s product formulations and packaging formats were "a strong fit" with his company's manufacturing business.

"This segment of our business showed sales growth of 25% in the first half of our current financial year and in that same period contributed 31% of group sales. The addition of Fish to this vibrant portfolio will add further strength and growth potential," he added.

The initial cost outlined was £2.7m with a further £0.3m earn-out for the company known to have made several eye-catching swoops in recent years.

In 2015, Swallowfield bought The Real Shaving Company, and followed it up with the acquisition of Brand Architekts year after. The latter deal was part-financed by the issuance of new shares, which brought in billionaire investor George Soros as a stakeholder, who currently owns 11% of the business. 

However, relative positivity surrounding the stock, and the reassurance of having Soros as a shareholder, should not detract from the fact that it remains in a cyclical consumer-focussed business, and much work is yet to be done. That setiment has seen its 52-week price range fluctuate between 260p and 419.32p, closing at 322.50p on 30 June, down 5.9% in the year to date. 

Among the reasons is a tacit acknowledgement by Swallowfield that pressure on material and operational costs has increased in recent years. Chief Executive How says plans are in place to mitigate this and that the company's strong trading momentum is keeping it on track to achieve projected full-year profits. The market would be keenly watching how the year pans out for the company in a challenging consumer climate, and we suspect so would Soros. 

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Gaurav Sharma (Associate Editor ReachX)

 

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