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As a Silly investor, I need to say that I like to hunt for a cut price. Penny shares have all the time piqued my curiosity given their small measurement and sometimes increased stage of worth volatility.
Penny shares consult with firms with a market capitalisation under £100m and a share worth of lower than £1.
Value a fairly penny
One which caught my eye this week was Revolution Magnificence Group (LSE: REVB). It’s a international, multi-category, mass magnificence and private care enterprise. I like that the corporate is diversifying with its wholesale retailing relationships, in addition to working with a transparent digital gross sales technique.
Revolution Magnificence shares have soared 10% within the final week alone. Shares within the AIM-listed magnificence retailer are buying and selling at 29.5p with a £93m market capitalisation. In its most up-to-date interim outcomes, the corporate reported adjusted earnings earlier than curiosity, tax, depreciation and amortisation (EBITDA) of £6.4m from £90.4m.
Latest replace
The corporate lately held its Capital Markets Occasion on 8 February with a quick replace to buyers. One factor that stood out was its diversified international earnings throughout the USA (27% of gross sales), UK (34%) and Remainder of the World (39%).
Revolution Magnificence’s “quick to market” content material mannequin can also be a tick in my books. The corporate has targeted on delivering participating content material rapidly to keep up and seize extra market share.
Whereas there’s loads to love about Revolution Magnificence, there are all the time dangers to investing. I believe penny shares, particularly, warrant heightened due diligence given their small measurement and sometimes vital worth swings.
One key threat I can see is that Revolution Magnificence could be very client dealing with. Whereas the corporate’s latest Capital Markets presentation reveals a US$460bn (and rising) international magnificence market, I’m cautious of direct-to-consumer firms. Folks do wish to spend on cosmetics, which comprise 78% of group gross sales, however that may be examined when occasions get powerful.
Companies are typically extra resilient and extra dependable from a buyer perspective. Given the present financial local weather, together with heightened cost-of-living pressures, I might see shoppers decreasing their magnificence spend in favour of the naked requirements.
E-commerce vs brick-and-mortar
The opposite factor that jumps out to me is the excessive proportion of earnings from bodily retail shops. Revolution Magnificence experiences 80% of its earnings are from bodily retail with 20% by way of digital.
With the rise of e-commerce and the likes of Amazon, brick-and-mortar retail has been below stress in recent times. One huge optimistic, nonetheless, is that actual property isn’t a significant a part of the enterprise with property, plant and gear making up £7.9m or 6.0% of complete property in FY23.
The robust features within the final week or so point out that different buyers are shopping for up Revolution Magnificence shares. I just like the look of the enterprise however am cautious of the consumer-facing ingredient if we see additional recessionary circumstances.
All in all, I’m prepared to bide my time and contemplate shopping for once I see the corporate’s subsequent outcomes launch to allay my issues.
