28.02.19 | A weird Australian story: BWX

By Jessica Sier 5 March 2019 3 min read

How’s this for a headline?

“Company does terribly, but not as awfully as investors expected, so shares went up 30%.”

BWX is the biggest natural skincare business in Australia, and its main brand is Sukin (which accounts for around 34% of company sales).

Last Friday, BWX announced it would earn between $27 million and $29 million for the 2019 financial year. Investors apparently expected less than that, because the shares shot higher.

BWX had a bizarre 2018.

Last May, the CEO John Humble tried to buy the whole company.

Mr Humble had suggested he was frustrated the existing shareholders weren’t allowing him to make as many acquisitions of other smaller personal care companies as he wanted.

He’d already made three in the prior year, borrowing around $170 million to pay for them, but he argued there were more opportunities and time was running out for BWX to evolve into a global personal care company.

So he - and finance director Aaron Finlay - figured they would try and take the company private so he could execute his own strategy.

As of May, Mr Humble already owned around 10.4% and was one of the largest BWX shareholders.

So, backed by a private equity firm Bain Capital Private Equity, the pair offered $6.60 for all the shares in the market. At the time, the share price was around $4.40.

Everyone was like, oh wow! That’s a lot more! That values the business at $860 million!

The share price jumped 35% after the news (in May), and then Mr Humble and Mr Finlay took leave for a while so the BWX board could scout around and see if there were any other players who wanted to make a competing bid for the company.

(Kind of like what happened with Trade Me.)

There didn’t seem to be any though.

And the share price began drifting lower as the months wore on and the market speculated over whether the attempted takeover would actually happen.

Without the regular CEO and with the three recent acquisitions, some BWX shareholders were worried they couldn’t manage to service the amount of debt they had taken on.

Then, in September, after 12 weeks of due diligence including a two-week extension at its request, Bain dropped the offer and walked away!

No deal!

Humble and Finlay stepped down officially from the team and shareholders were like 😮😮😮.

Over the next five days, the share price dropped like a rock. Down 14%.

The CEO who had been taking care of business while Mr Humble was trying to takeover the company was appointed the full time CEO. But the whole management buyout thing had seriously disrupted business and the company had lost a lot of momentum during that half-year period.

A month later in October, BWX downgraded their earnings, announcing they expected to earn $40.3 million (earnings before interest tax amortisation) for the 2019 financial year.

And then in late December when everyone was about to have their Christmas break, BWX downgraded their earnings again, saying they expected to earn between $27 million and $32 million.

Shares cratered even further.

Now, nobody really knows why Bain and the guys walked away from the deal. Maybe the share price drop prompted them to think they could actually buy it cheaper than their $6.60 offer at another time?

Maybe they found something in the company forcing them to think again? Nobody knows. It's a mystery!

Anyway, the BWX team have been in kind of damage control mode since then, which is why last Friday’s announcement piqued investor interest.

In its six month guidance report, BWX announced it expected to earn between $27 million and $29 million for the 2019 financial year.

So while that was a lot less from where the business was six months ago, it was not as bad as investors apparently expected. In fact, some took it to mean the balance sheet was relatively stable.

There had been mutterings BWX might not be able to repay its debt load and might face bankruptcy or be forced to raise more money (diluting the holding of existing shareholders).

The share price soared as much as 30% after the announcement and is now trading around $2.10 (as at 28 February).

So, it’s been a wild ride for BWX, which Spaceship holds in its Spaceship Universe Portfolio.

Whether it can regain the momentum it had and keep riding the natural skincare wave it was enjoying earlier last year remains to be seen.

But for now we're keeping an eye on this one.

Enjoy your week.

P.S. This header features Tintin, boy detective, alongside Captain Haddock and Professor Calculus.

Words by
Jessica Sier Right Chevron

Jessica Sier is a financial journalist who currently heads up Spaceship's content. Prior to that she was a reporter at the AFR where she discovered breaking down financial bulls**t was a public good.

28.02.19 | A weird Australian story: BWX