2 beauty ASX shares delivering attractive growth

BWX and Adore Beauty are both delivering attractive growth.

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There are some industries such as the beauty industry that are exposed to ongoing strong overall growth. Some ASX shares are capitalising on this.

According to Frost & Sullivan, the beauty and personal care market in Australia is/was worth $11.2 billion and is expected to grow at a compound annual growth rate of 26% to 2024. Online sales comprise just 11.4% of the beauty and personal care market in Australia, which is a lower rate of penetration than in other developed markets like the US, UK and China.

Adore Beauty Group Ltd (ASX: ABY)

Adore Beauty is the one that shared those interesting characteristics (above) about the beauty market. It’s an e-commerce business that sells around 11,000 products across 260 or so brands.

Due to the large opportunity that Adore Beauty’s management sees in the growth of the online beauty retail world, it’s going to invest to grow its market share with a disciplined strategy to increase brand awareness, win new customers and improve customer retention.

The beauty ASX share believes that because of the predominately fixed nature of the cost base, management expect that scale benefits will increase and improve the operating leverage and deliver earnings before interest, tax, depreciation and amortisation (EBITDA) margin growth in the long-term as it grows revenue.

Adore Beauty is seeing a lot of revenue growth. In FY21 it experienced revenue growth of 48% to $179.3 million and EBITDA growth of 53% to $7.6 million.

Whilst active customers increased 39% to 818,000, returning customer growth was 64%. This led to annual revenue per active customer rising 7% to $219, driven by “strong” customer retention and an increasing average order value.

It’s rated as a buy by the broker Morgan Stanley, with a price target of $6. It’s expecting strong revenue growth over the coming years.

BWX Ltd (ASX: BWX)

BWX is natural beauty business that is invested in a number of different brands like Sukin, Andalou Naturals and Mineral Fusion. Nourished Life is another business BWX owns, which is an e-commerce business which saw net sales of $25.2 million in FY21.

The beauty ASX share has been busy in 2021. It announced a 5-year, equity-linked strategic partnership with Chemist Warehouse.

BWX has also made two acquisitions in the last few months.

It has bought Flora and Fauna, an Australian online retail platform that exclusively focuses on vegan, ethical and sustainable products. Net sales for Flora and Fauna were expected to be between $16.4 million to $17.1 million for FY21. This business will form an online retail group, 80% of which are not available in mainstream retail.

Finally, a couple of weeks ago, BWX announced it was going to spend $89 million to buy 50.1% of Go-To-Skincare – it’s an Australian skincare provider with a range a of skincare products for the ‘masstige’ market. In FY21 this business made $36.8 million of revenue and $11.6 million of EBITDA.

The beauty ASX share’s core business made progress in FY21. Underlying revenue increased 8.6% to $203.9 million, EBITDA grew 11.5% to $34.5 million (and ahead of guidance) and earnings per share (EPS) went up 44.9% to 17.1 cents.  

The new operations and manufacturing facility is within budget and on track to open at the end of the 2021 calendar year. This is expected to deliver a “step change” in both financial and operating performance.

According to Commsec, the BWX share price is valued at 17x FY23’s estimated earnings.

Should you invest $1,000 in Adore Beauty right now?

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Adore Beauty Group Limited. The Motley Fool Australia owns shares of and has recommended BWX Limited. 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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