Finncap Target price 22010 Oct 2018 16:46
CEO appointed. Following the June 2018 announcement that it was seeking a UK-based
Chief Executive Officer, Kieran Callan has been appointed. Currently a NED, he has the
relevant experience within the FMCG sector across multiple continents including
leadership roles with PZ Cussons to drive the business, given the strong growth
expectations, product launches and new retail chains. His appointment should take effect
from 17 September. Haris Chaudhry remains Executive Chairman.
Roots in Tesco. Concomitantly, it was announced that the company’s haircare brand,
Roots, would be ranged initially in 432 of Tesco’s 3,000+ stores in the UK from
November. These stores include some of Tesco’s largest and key format stores for
haircare.
Follows Roots in Boots. Roots is currently being shipped into 359 of the largest of
Boot’s 2,500 stores this month with launch due once the exclusivity with Superdrug
expires on 19 August. The Roots’ product range has been extended to include heat
protect spray, conditioning spray, conditioning mask. Additionally, the company has a
number of products under development for launch in early 2019.
Underpins current revenue forecasts. Our forecasts for Roots in FY 2019 are £0.7m,
rising to £1.0m in FY 2020, which compares with c.£0.3m in FY 2017. Given that Roots is
now ranged in all 779 Superdrug stores (up from c.500), these additional stores from
August and November (791 in total), potentially offer upside to our forecasts.
Forecasts and valuation. We are leaving our forecasts unchanged but recognise the
upside potential that Roots offers. We retain our target price of 220p, which implies a
calendar-adjusted 2019 P/E of c.22.9x, EV/EBIT of 24.1x and EV/Sales of 2.2x. Given our
2-year CAGR forecasts for revenues of 26