When cosmetics company BWX bought Go-To, it had a $100 million problem from the get-go. Now that’s playing out with damaging consequences for shareholders.
When ASX-listed cosmetics company BWX acquired Zoe Foster-Blake’s Go-To Skincare in August last year, I wrote that it was really only half a deal and the final payment might create a huge problem.
BWX’s rescue raising was accompanied by an earnings downgrade, after the company seemingly spent the previous six weeks surprised by the negative impact of interest rates, inflation, and consumer confidence on people’s willingness to spend money. The downgrade created some urgent problems for BWX’s balance sheet, and the $23 million raising felt rushed. While a 50 per cent discount is not uncommon on Sukin products, its extension to the parent company’s share price was concerning.Considering BWX distributed around $4 million of dividends a year ago when the share price was $5.31, it’s an unfortunate “sell low, buy high” cash management strategy.
The urgency around the capital raising is likely related to debt covenants held by lender CBA. In return for a $10 million debt pay down, the bank has agreed to ignore any breaches – but only until September 30. That kick of the can down the road wasn’t exactly AFL standard. If Go-To earnings were flat in FY22 – a big “if” in a tougher ecommerce environment – then in today’s market it might be worth between $50 million and $75 million.
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