BWX’s share price chart needs a make-over

BWX Limited (ASX: BWX) with its subsidiaries develops, manufactures, and sells natural body, hair, and skincare products predominantly in Australia and the United States. The company sells its products predominantly mainly under the Sukin, Mineral Fusion, Andalou Naturals, and Go-To brands. 

 

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BWX also sells its own and third-party sourced wellness products across multiple categories via the Flora & Fauna and Nourished Life e-commerce sites. BWX Limited was incorporated in 2013 and is headquartered in Clayton, Australia. 

 

❶ In aA trading update the company downgrades EBITDA guidance for FY19 by approximately 30%, largely caused by softness in exports to China and loss of sales momentum in the US brands during the management transition. (Profit Guidance) 

❷ BWX announces its 1HY19 results. Despite leaving the EBITDA guidance unchanged, the market reacts positively to the announcement as it shows sales volumes are picking up. (Investor presentation – 1H FY19) 

❸ Another trading update downgrades the FY19 EBITDA guidance by another 20% as the company cycles unprofitable promotions and unnecessary stock building. (Leadership, Trading & Governance Update) 

❹ Buying pressure from institutional investors pushes up the share price. (Becoming a substantial holder) 

❺ FY19 results show an EBITDA in line with the guidance, but a growing US market share and online sales volume. The company also decides to pay a dividend of 2.7 cents per share, which signals the management’s confidence in the future performance of the business. (FY19 Financial Results Presentation) 

❻ Corona Crash. 

❼ BWX raises $50m at $3.40 and issues a trading update indicating an expected NPAT for FY20 of $14.1m, which was 48% higher on PCP. (Equity Raising for Growth) 

❽ The 1HY22 result showed a negative statutory NPAT driven by expense costs related to the partnership agreement with Chemist Warehouse and acquisition costs. BWX also warned of the external COVID-impacted trading environment. (Half Year Results Presentation) 

❾ A trading update warns of increasing operating and freight costs and impacts of supply chain issues on the profitability of the business. (BWX – Full Year FY22 Forecast) 

 

BWX took a 50% hit in December 2018 as the company lowered its EBITDA guidance for FY19 due to the impacts of the US-China trade war on its business. As the markets started to recover from the beginning of 2019, institutional investors intensified their on-the-market purchases and pushed up the share price above $2.00 by August 2019. This was when BWX announced its FY19 results, which despite containing no significant surprise, drove the share price to a high of $4.70 in the following three months as the overall sentiment on the economy had become bullish. 

Following the March 2020 Corona Crash, BWX recovered to its pre-pandemic levels in the next few months as the business kept increasing profitability despite the COVID-impacted trade environment, which wcould take the share price to an all-time high of $5.50 in June 2021.  

BWX started 2022 by reporting increasing costs associated with supply chain issues and rather unsuccessful acquisitions it completed in the last two years. This coupled with the overall bearish sentiment on the markets, brought by soaring inflation levels and interest rate hikes, caused BWX to plummet from $4.50 to $1.30 in the first four months of 2022. 

 

BWX likely to repeat history 

BWX tipped below its all-time lows of early 2019 after announcing disappointing profit guidance for FY22 (point 9 on the chart) and institutional investors quickly scooped swooped up in millions of shares on the market, the same pattern that took place in 2019. What it took for BWX to recover completely back then was not a full recovery in its profitability, but just an improvement in the overall market sentiment.  

The company’s profitability started to recover one year after its share price had fully recovered from the damages of the poor trading environment during the late 2018 US-China trade war.  

We believe that BWX has a solid market share in the consumer goods sector, and it will be able to fully recover once again when the bullish sentiment returns to the markets.  

 

BWX can return leaner after recovery 

BWX’s CEO, Roy Gration, who commenced in the role on 1 March, mentioned in the FY22 profit guidance that he has identified and will achieve approximately $5m in cost-out initiatives in FY23 and beyond. The company will provide a further update on its simplification and efficiency program at its investor day on 19 May 2022. Mr Gration was BWX’s COO since August 2018 and is thoroughly familiar with the group’s operations., and w We believe his presentation on the investor day is likely to leave a positive impact on investors’ sentiment.  

If these cost efficiencies are achieved as planned, BWX could even make a more glorious recovery than the it did last time in the long run.  

 

How to play BWX 

As the sentiment on the global equity markets remains bearish, we expect the selling pressure on BWX to continue. Institutional investors have already found the current prices attractive enough to start buying on -the-market, purchases which is an indication that a bottom for the price might be close. However, their buying pressure is not likely to reverse the downtrend while there’s still a sell-off in global markets.   

As such, our recommended strategy is to wait for the meidium-term downtrend (the green line on the chart) to break before making an entry decision to avoid a “catching a falling knife” attempt.  

A break back below the broken downtrend then can then be used as a stop loss indicator. Our target for long-term investors is $4 to $5 in the next 1 to 2 years. 

 

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Frequently Asked Questions about BWX Limited

• Is BWX Limited an Australian company? 

  Yes, BWX is based in Clayton, Victoria.  

• Does BWX Limited pay a dividend? 

  BWX paid 3.1 cents per share in 1HY22, but we don’t have any estimates for the near future dividends as the company’s trade environment remains challenging. 

• Is BWX Limited a BUY right now? 

  We think it’s best to wait for a confirmed break of the mediumid-term downtrend (the green line on the chart) before making an entry decision.