Picture supply: Getty Photos
As a Silly investor, I need to say that I like to hunt for a discount. Penny shares have at all times piqued my curiosity given their small dimension and sometimes greater degree of value volatility.
Penny shares check with firms with a market capitalisation beneath £100m and a share value of lower than £1.
Value a fairly penny
One which caught my eye this week was Revolution Magnificence Group (LSE: REVB). It’s a world, 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 world 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 centered on delivering participating content material rapidly to keep up and seize extra market share.
Whereas there’s quite a bit to love about Revolution Magnificence, there are at all times dangers to investing. I believe penny shares, particularly, warrant heightened due diligence given their small dimension and infrequently vital value swings.
One key threat I can see is that Revolution Magnificence may be very client dealing with. Whereas the corporate’s latest Capital Markets presentation reveals a US$460bn (and rising) world 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 instances get powerful.
Companies are usually 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 lowering 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 share of earnings from bodily retail shops. Revolution Magnificence stories 80% of its earnings are from bodily retail with 20% through digital.
With the rise of e-commerce and the likes of Amazon, brick-and-mortar retail has been beneath strain lately. One huge constructive, 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 whole belongings 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 factor if we see additional recessionary situations.
All in all, I’m prepared to bide my time and contemplate shopping for after I see the corporate’s subsequent outcomes launch to allay my issues.
