Is Sukin seller BWX Ltd ready to ride higher?

BWX Ltd (ASX: BWX) might sound like a mining services company, but it’s actually in the natural beauty business and growing at rates that would make most mining companies green with envy.

BWX is the business behind the increasingly popular natural Sukin skincare, shampoo and general beauty products that are sold in pharmacies or retailers like Priceline, Soul Pattinson and About Life.

For the six-month period ending December 31 2016, BWX posted a profit of $8.2 million on revenues of $37.5 million, which were up 30.2% and 36.4% respectively over the prior corresponding half.

That’s some impressive growth as the company’s chemical free toiletries are increasingly popular with Australian consumers chasing cleaner, greener, lifestyles.

Importantly, the company’s profit margins are also rising despite the products being competitively priced versus upmarket rivals, or the mainstream chemical containing offerings commonly found on the shelves of large supermarkets.

For the most recent half gross profit margins were up to 65.1% from 58.9% in the prior half, which translates into a classic buy signal of revenue and margin growth to catch the attention of intelligent investors.

Moreover, the group is now taking its recipe for success into overseas markets with a distribution deal in the UK recently secured with giant pharmacy chain Boots. The group has also signed a distribution deal with UK health retailing group Holland & Barrett, with both deals offering BWX some big potential in an overseas market far larger than Australia.

The group is also aiming to grow into Canada and China, with export sales of $6.7 million recorded in the six months to December 31.

Is it a buy?

BWX reported 8.93 cents in earnings per share for the half year, with a maiden interim dividend of 2.5 cents per share also declared.

Due to its ongoing success management is now forecasting 30% EBITDA growth for FY 2017, which means at $4.47 the shares sell for around 25x analysts’ estimates for full year earnings per share in the region of 18 cents.

This places BWX on a price-earnings-to-growth (PEG) ratio of less than 1 which according to conventional valuation metrics means it could be considered rather good value. The company also carries no debt with strong cash flows and plenty of cash on hand to fund its Australian and overseas growth opportunities.

BWX looks a good long-term bet to me for growth-oriented investors, alongside vitamin retailer Blackmores Limited (ASX: BKL), which has an impressive track record of historical growth. I rate both these businesses as buys on current valuations of $4.47 and $100.10 respectively.

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Motley Fool contributor Tom Richardson owns shares of Blackmores Limited and BWX Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of BWX Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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