Warpaint London PLC

Warpaint London PLC (LSE: W7L) is a FTSE AIM 100 index listed stock specializing in affordable color cosmetics under brands like W7 and Technic. It operates through two segments: Branded (own-label products sold globally) and Close-Out (repackaged surplus stock). Its portfolio includes Man’stuff, Body Collection, and Chit Chat (for pre-teens), along with private-label manufacturing for retailers. The company focuses on mass-market distribution through supermarkets, drugstores, and online channels.

Key Recommendation Rationale – Sell at GBX 472.50

• Resistance near Current levels: W7L’s stock price crossed the Resistance (R1) which was stated in the previous report on 01 Apr 2025 therefore, there could be a possibility that the stock might consolidate or decline from the current levels, considering overstretched valuation. Considering the market conditions and the price action, it is prudent to exit from the stock.
• Impact of Increased US Tariffs: The Group acknowledges that recently implemented higher US tariffs are affecting its US business. While the US market is currently a modest part of overall revenue, the tariffs could pose a continued challenge. The US market contributed £8.7 million (8.6% of total revenue) in 2024, up 19% from £7.3 million in 2023.
• Dependence on Few Brands: W7 brand sales £65.4 mn, up 14% account for 64.4% of total revenue, indicating heavy reliance on a single brand. Other brands (Technic, Skin & Tan, etc.) contribute to smaller portions, increasing vulnerability if W7 faces market challenges.
  

Valuation Methodology: Price/ Earnings Approach

Share Price Chart  

One-Year Technical Price Chart (as of May 27, 2025). Source: REFINITIV, Analysis: Kalkine Group

Conclusion

Despite Warpaint London PLC's commendable financial performance in 2024, with revenue increasing by 13% to £101.6 million and pretax profit rising by 31% to £23.8 million, several underlying factors raise concerns about the sustainability of this growth and the company's current valuation. significant point of concern is the company's heavy reliance on its flagship brand, W7, which accounted for £65.4 million or 64.4% of total revenue in 2024. While this represents a 14% increase from the previous year, such dependence on a single brand increases vulnerability to market shifts and brand-specific challenges. Other brands like Technic and Skin & Tan contribute smaller portions, highlighting the concentration risk. Additionally, the recently implemented higher US tariffs are adversely affecting Warpaint's US operations, particularly impacting margins on goods manufactured in China. Although the US market contributed £8.7 million (8.6% of total revenue) in 2024, up 19% from £7.3 million in 2023, the company acknowledges that these tariffs could pose ongoing challenges. Efforts to mitigate these effects, such as exploring manufacturing opportunities outside of China, are underway, but the long-term impact on profitability remains uncertain. W7L appears overvalued. For conducting the valuation, the following peers have been considered: Tesco PLC (LSE: TSCO), Unilever PLC (LSE: ULVR), etc

Given its current trading levels, the recent strategic investments and partnerships, relative valuation, and associated risks, it is prudent to exit the stock at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the Current Market Price of GBX 472.50 as of 27 May 2025, 09:26 AM, GMT+1.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 27 May 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/or technical analysis taking into consideration both short-term and long-term scenario.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’