Investors seeking to add glitz, glamour and growth to their portfolios should buy shares in Revolution Beauty (REVB:AIM). This fast-growing make-up, skincare and haircare brand will capitalise on a buoyant mass beauty market once Covid-19 restrictions around the world are fully removed, the global vaccine take-up gathers pace and consumers begin to go out, socialise and glam themselves up once more.

Founded in 2014, the beauty and personal care business already has proven global scale, its wares sold in retailers across five continents, and boasts a rapidly-growing online business. Yet its share of the downturn-resistant, large and growing global mass beauty market remains small, suggesting there’s an enormous landgrab opportunity in front of the business.

Shares believes Revolution Beauty’s ability to bring quality, cruelty free cosmetics and skincare products to market faster than rivals leaves the company well placed to deliver exciting rates of growth for many years ahead.

MAKE A MINT WITH MINTO

Revolution Beauty joined AIM in July 2021, having raised £110.7 million of new money through an oversubscribed placing priced at 160p. Co-founded by chief executive Adam Minto and executive chairman Tom Allsworth, the company operates a multi brand, multi category strategy, selling its products in brick and mortar and digital retailers through wholesale tie-ups, as well as direct to consumer via its own e-commerce operations.

It sells a diverse and inclusive array of products catering to a wider range of skin tones. And it’s fair to say its products appeal to the more ESG-minded 16-to-35-year-old demographic, being 100% cruelty free and mostly vegan, with sustainable and recyclable packaging used wherever possible.

Revolution Beauty is one of a number of disruptive smaller companies, among them AIM-listed peer Warpaint London (W7L:AIM), which are challenging the industry’s established order by rapidly developing and launching new products to take advantage of new market trends and selling them at sharper prices than the major beauty prestige giants.

RETAIL BEAUTY PARADE

Emerging from the pandemic, Shares sees scope for strong earnings growth for the company as social life resumes in earnest and the global consumer spends big on colour cosmetics.

Revolution Beauty’s roster of retail customers includes Superdrug and Boots in the UK, the US retail giant Target and America’s largest specialist beauty retailer Ulta, as well as Australia’s health and beauty leader Priceline, and Watsons which is one of Turkey’s leading beauty retailers with more than 250 stores in 65-plus cities.

DIGITAL DELIVERY

Revolution Beauty’s fast-growing digital business includes its direct to consumer website and a burgeoning band of digital partners including Amazon, ASOS (ASC:AIM), Boohoo (BOO:AIM) and Zalando. These digital retail partnerships give Revolution Beauty access to a large number of new customers without any capital expenditure requirements.

From a standing start in August 2019, its customer growth in the DTC channel hit 1 million by December 2020 and at the start of 2021, Revolution Beauty turbo-charged growth prospects by launching with THG’s (THG) Ingenuity platform in the US, Australia and New Zealand.

Shares also notes that Revolution Beauty is very active on social media, successfully collaborating with beauty influencers to promote its products on popular platforms such as Instagram and TikTok.

‘Our differentiated business model brings together both online and retail revenues, while our manufacturing and consumer feedback strategy enables us to bring new products to market quickly,’ says Minto.

He points out this means Revolution Beauty ‘can quickly respond to the megatrends driving the global mass beauty industry’, which includes colour cosmetics, skincare, haircare, fragrance and sun care. According to Euromonitor, this market was valued at $210 billion in 2020 and is forecast to grow to $283 billion by 2025.

As for Revolution Beauty, its revenue increased by 37% to £137 million in the year to December 2019 and impressively, grew to £158 million in the 14 months to 28 February 2021, on which the company generated adjusted EBITDA of £13.1 million.

This was a credible result considering the impact of the pandemic and the temporary closure of certain brick and mortar retailer customers for significant periods, which was offset by strong growth through both digital partners and the DTC business.

Admittedly, continued and increased investment in staffing, marketing and other costs to drive the global growth of the brand meant the business was loss-making at the pre-tax line.

EARNINGS OUTLOOK

At the time of writing there were no earnings forecasts in the market, but we expect analysts to start publishing estimates very soon. That is likely to be a catalyst for the share price as investors will be able to get a better feel for what the company might achieve.

One risk with investing in Revolution Beauty is that it has no track record as a listed business. However, we are confident that its proposition and progress with sales growth and distribution should soon translate into positive earnings and therefore share price growth in time.

We also take some comfort that the stock has proved popular with numerous investment funds which have taken positions in the company.

These include various AXA Framlington funds including AXA Framlington UK Select Opportunities (B7FD4C2), Aegon UK Smaller Companies Fund (B142FS1), Janus Henderson UK Alpha Fund (3095683), Premier Miton Ethical (BTHH062) and Crux UK Special Situations (BG5Q5X2), according to data from Refinitiv and Morningstar. [JC]

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