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This leading broker thinks BWX Ltd (ASX:BWX) shares are in the buy zone

BWX share price
Source: Company presentation

Unfortunately for its long-suffering shareholders, the BWX Ltd (ASX: BWX) share price is spending another day in the red on Friday.

At the time of writing the personal care products company’s shares are down 1% to $3.95.

This has left them trading within sight of their 52-week low and at a level that one leading broker thinks is very attractive.

According to a note out of Goldman Sachs this morning, the broker has reinstated coverage on BWX with a buy rating and $5.60 price target. This price target implies potential upside of almost 42% for its shares over the next 12 months.

While the broker acknowledges that BWX is not quite out of the woods yet, its potential remains.

In the near term the broker feels that there are a few challenges that BWX will have to overcome. These include appointing new directors to the board and its new and relatively unknown CEO and CFO gaining the trust of investors.

The broker also appears concerned that the company may have been distracted by the Bain Capital takeover approach and could have suffered operationally.

What is expected in FY 2019?

In the first half Goldman expects revenue to increase 34% and EBITDA to grow 19%, before fading in the second half.

The broker has said that: “we anticipate its FY19E earnings to have a 2H skew with Sukin International likely to remain weak and investment in a ERP system and seasonally higher P&A spend to offset topline growth.”

As a result, the broker has forecast full year revenue of $178.8 million and EBITDA of $44.9 million in FY 2019. This equates to year on year growth of 20.3% and 11.5%, respectively.

However, it has acknowledged that that the successful execution of its strategy of cross-selling its three brands across its key geographies could result in an acceleration in EPS growth into FY 2020.

Should you invest?

Based on Goldman Sachs’ earnings per share estimate of 22.5 cents in FY 2019 and 27.8 cents in FY 2020, BWX’s shares are currently changing hands at 17.5x estimated FY 2019 earnings and 14x estimated FY 2020 earnings.

I think this is good value for its shares, just as long as it doesn’t make a mess of its expansion into the United States. While I do think that this is a reasonable possibility and something to consider, I’m optimistic that it won’t.

In light of this, I would put it up there with Aristocrat Leisure Limited (ASX: ALL) and Helloworld Travel Ltd (ASX: HLO) as another example of growth at a reasonable price on the ASX.

Where to invest $1,000 right now

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BWX Limited. The Motley Fool Australia owns shares of Helloworld 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 Scott Phillips.

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