# Warpaint London Plc  Trading update: softening UK market

- Link: https://www.directorstalkinterviews.com/warpaint-london-plc-trading-update-softening-uk-market/412760742
- Published: 2018-11-01T13:11:34+00:00
- Author: Charlotte Edwards

**[⌊Hardman & Co Report Report Downloads⌉⌊Hardman & Co Report Report Downloads⌉[Warpaint London
Plc** (LON:W7L) has released a trading update for the year ending 31 December 2018.

The company has prudently signalled that group sales for FY2018 are likely to be
lower than previously indicated, in the range of £48m-£52m, with adjusted PBT of
£8.5m-£10m. The company says that trading conditions in the UK remain challenging
but that it has seen strong growth in its overseas markets. The share price responded
negatively to this trading announcement, plunging by over 45% to 112.5p on the day,
from the 206.5p closing price on 26 October. We have lowered FY18E revenue to £50.0m,
from £55.1m, with adjusted PBT of £9.1m, from £12.4m, but we retain a dividend forecast
of 5.5p.

► **UK trading conditions:** During the interim results announcement in September,

Warpaint stated that “trading conditions in the UK remain challenging, because of
the UK high-street slowdown and ongoing Brexit anxiety.” The company has seen a 
further softening in the past six weeks, with retailers reducing stock levels and
delaying Christmas orders. ► **International operations:** Given the weak retail
market in the UK, Warpaint’s management has been putting specific emphasis on its
international operations. Benefiting from the recent acquisition of Leeds Marketing,
Warpaint saw a 60% increase in group sales in the US for the nine-month period to
end-September 2018. The company has also reported its first sales to mainland China,
as well as to Russia. ► **Valuation:** Despite the reduction in revenue and PBT 
forecasts highlighted above, Warpaint will still be profitable for FY18. With a 
strong cash position, the management team still intends to pay off the remaining
borrowings. The company remains profitable and cash-generative, and it intends to
maintain its progressive dividend policy. ► **Risks:** As shown in this trading 
update, Warpaint’s success depends partly on the growth in the discount retail sector.
Following the acquisition of Retra, which has significant exposure to the gifting
market, Warpaint has better visibility in revenue forecasting, but Retra also increases
its exposure to the struggling UK high-street retailers. ► I**nvestment summary:**
Warpaint is benefiting from its two acquisitions, Retra and Leeds Marketing, which
enable the group to enter the fastest-growing colour cosmetics market (China) and
further expand into the largest colour cosmetics market (US) in the world. It offers
investors the opportunity to invest in the fast-growing colour cosmetics sector,
with a highly experienced management team, an attractive RoE and a high dividend
yield.

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