Warpaint, says slang compiler Urban Dictionary, is “an overabundance of cosmetics applied to a woman’s face for the purpose of hiding what lies beneath”. But the Aim-listed stock of the same name may feel it has nothing to hide. Warpaint London, maker of the affordable make-up brand W7, whose stockists include Tesco and Boots, has had a stonking 2023, with rising sales sending the shares up 63 per cent to 295p.
This would usually be a red flag for potential investors. Yet the high regard in which Warpaint London’s make-up is held by customers — along with its improving margins, cheap prices and prudent management — suggests far more growth is to come.
“Ordered some bits because of the affordable price ... and I couldn’t be happier,” reads a representative review of the W7 range, which brings in 55 per cent of Warpaint’s revenues alongside a cosmetics gifting business.
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Warpaint London, whose products are mostly aimed at 16 to 34-year-olds, had already flagged buoyant trading this year. But it still surprised the market with sales for the five months to May 31 up 45 per cent on the same period last year, at £30 million. Hard-pressed shoppers still want to buy make-up, so W7’s £2 lipstick appeals. Margins were ahead too — up almost 3 per cent to 36.4 per cent — despite the cost of living crisis.
Warpaint’s balance sheet is strong, with £7.5 million cash and no debt, and it has a diverse global customer base: the UK provides 43 per cent of revenues, continental Europe 44 per cent and the US 8 per cent, while 43 other countries bring in 5 per cent.
The firm is pushing ahead in the US and China, as well as diversifying its range, from a foundation of financial strength: Warpaint has been profitable since it was founded in its current format in 2002. With manufacturing all outsourced as part of a Ryanair-style fixation with saving money since it floated in 2016, the company proudly declares that “costs are tightly controlled”.
Despite the share price surge, Warpaint, like its products, is still relatively inexpensive. Shares are trading at 16 times forecast earnings but sharp growth looks likely, with the firm repeatedly seeing large order increases from its customers, including Tesco and CVS in the US. Its Chit Chat pre-teen brand is also capitalising on TikTok and other social media make-up trends.
Darren Shirley at house broker Shore Capital believes Warpaint is “in the foothills of its UK and international growth opportunity, with strong foundations and accelerating momentum”. It should get even prettier. Buy.