LON:IDP | Innovaderma - Glowing Potential Or Diversifying Too Quickly?

19th Nov '17 by Tortoise investor

3 comments 3765 reads

I’ve recently been going over Innovaderma (LON:IDP) a share I’ve held on and off this year, so thought I’d share my research with Stockopedia users. I currently hold it and topped up recently after it fell nearly 50% from its high earlier in the year. Graham Neary has also written about it a few times and it was Graham that originally flagged it to me. My view is that it’s a good GARP (growth at a reasonable price) share and that there is potential for its Roots product, and further expansion of Skinny Tan in Europe and the US, to also act as a catalyst for the share price to rise.

I would love to hear readers' views, especially on anything I have missed.

ABOUT THE COMPANY

Innovaderma is an Australian founded company, although manufacturing is based in the UK, specialising in beauty treatments. It primarily operates in the UK, US, Australia, New Zealand, Philippines, and South Africa. The company was setup in 2013 so it is young. The market cap is small here at £29.6m and because the founder holds a large number of shares it can be quite difficult to trade with some retail trading platforms not offering it at all. I trade it through IG.

One of the chief attractions is its fast growth. In the year ending 30 June, its revenue grew by 106% and gross profit 125.5%.

Products

The company has a number of products, the most prolific of which is Skinny Tan. This was a product acquired by the company, rather than developed fully in-house, after it was showcased on Dragon’s Den. The women who launched the product now work for Innovaderma. Sales of this product have been growing very quickly and this excitment has driven the share price during the 2017 bull market. The company describes the product as ‘the first self-tanner that combines a natural tanning active with naturally derive skin smoothing actives to tan, contour and reduce the visible appearance of cellulite’. Benefits of the product supposedly include that it looks better than other tanning products, has fewer (if any) visible streaks, and does not smell as bad.

Online reviews of Skinny Tan are mixed although websites like Amazon have a small number of reviewers so it needs to be treated cautiously. Women I’ve asked who…

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Tortoise investor

25th Nov '17

There's further confirmation in the Express that Roots is growing quickly: https://www.express.co.uk/finance/city/883619/INNOVADERMA-hero-hair-brand-Roots-delivers-strong-growth

Current sales of Roots products are reported to be "six times the sector average since launching this summer both in Superdrug stores".

To date Innovaderma (LON:IDP) has mostly risen during the year off the back of SkinnyTan sales so growth from this additional product is encouraging.

runthejoules

16th Jan '18

I think you fail to mention SkinnyTan has an exclusive deal with Superdrug at the moment. Once this expires and it moves to Boots etc sales should improve further. I hold.

mojomogoz

18th Feb '18

Hi. I looked at this company this morning. I don't really get the attraction and here are my reasons:

1) Too many products with no connection between them other than they are vanity/insecurity plays - love the be a better shagger product - thinking on getting myself in that self-improvement program :)

2) Superdrug is very big. Are they there due to the ex Superdrug guy in senior mgt team and they are not really pulling through? Shouldn't they be making more out of that direct relationship in? Shouldn't they just be banging the whole ship into this super relationship early on and forget the rest?

3) 2 above makes me think they are not confident on Skinny Tan....or there's some ego, hubris or financial flak in the way as this product comes from the lions den winner.

4) Gross margin means nothing as marketing expense comes after it.

5) Marketing expense as a %age of revenue is high. This looks like a VC funded early stage tech company...gunning the sales going for a takeover of an existing space or making a new space for itself. That takes years of VC funding where revenue growth is all that is sought and profits and cash flows secondary. I don't think this model can work in this sort of beauty/vanity product area. There's no scope to take the space

I am not concerned about mixed reviews. This sort of product is so personal and has a high psychological edge to it (shag confidence for sure!!) that there are always going to get some bad press. Doesn't matter as for those that feel it works they have dedicated customer.

I think this stock is going to have a major stumble, perhaps even though it has super high revenue growth.

I could only get involved on the stumble. My hunch is that it will be possible to pick this stock up at price that is p/s less than 1 even though revenue goes up. p/s currently 3x.

NOTE: I am not a natural early or high growth investor as I like to see some stress handled by businesses as its through that that I feel I understand something deeper about them. That's a bias and a limitation in many ways for me and doesn't make me right...just my tic.

Innovaderma - glowing potential or diversifying too quickly?

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