da Intermonte – INTERCOS Company Research Report

Buon pomeriggio,

di seguito e in allegato inviamo il company research report relativo a INTERCOS a cura di Intermonte.

Rimaniamo a disposizione per ulteriori informazioni.   

Un caro saluto,                                      
Diana Avendano Grassini

M. +39 3381313854

At the heart of Beauty Industry/Constantly Innovating the Beauty Industry

• The real global engine behind the Beauty sector. Intercos is a leading global business[1]to-business (B2B) group that develops, manufactures, and markets cosmetic and skin care products for almost all national and international major and emerging brands, in addition to cosmetics, skincare, and hair and body care retailers. The Group is the worldwide leader in the outsourced colour cosmetics market, with a c.10% market share in the segment, and also has a strong position in the outsourced skincare market, as the leading western company in terms of revenues. It operates through its three business units focused on the different product segments (Make-up, Skincare and Hair & Body) which rely on two different business models: the core full outsourcing model (full service with formulations owned by Intercos) and to a lesser extent, and only in the Hair & Body BU, contract manufacturing (formulations provided by clients and only produced by Intercos).

• Constantly growing and resilient even in downturns. The company was established by Dario Ferrari in 1972 and has a remarkable track record of growth, with a +13% sales CAGR in the ten years prior to the pandemic (2009-2019) and a +17% adj. EBITDA CAGR in the same period. The group ended FY21 with sales of Eu674mn and adj. EBITDA of Eu101mn, a 15% margin on sales, figures that are already expected to rebound to well above pre-pandemic levels this year, growing c.+21% YoY. The reference market, and Intercos in particular, have proved highly resilient during the crisis, before showing positive trends and a strong, rapid recovery in the immediate aftermath. Innovation is at the heart of what makes Intercos unique.

• Innovation is at the core of the Intercos business model, and is the main differentiating factor to the competition, which is mainly exposed to pure contract manufacturing. The number of employees devoted to innovation and annual R&D investments, constantly at a remarkable c.5% of sales, are testament to this. At the time of writing, c.17% of total employees are dedicated to innovation across 11 research centres, spread globally to intercept specific local market characteristics and study proper solutions for each individual client. As a result, in the past five years Intercos has created c.1,260 formulations on average, which are and remain proprietary to the company. We initiate coverage with a OUTPERFORM recommendation and TP of Eu16. Our DCF valuation yields a target price of Eu16 per share, which implies c.30% of potential upside. The stock is currently trading at c.10x EV/Adj.EBITDA, which we believe represents an attractive entry point even in light of the recent stock re-rating that brought it back to IPO levels. Upside potential remains intact after the pandemic drove a reset in the stock’s value.

• We particularly appreciate Intercos’s profile that is unparalleled within the industry, as well as its unique characteristics that should allow the company to outperform reference market volumes and profitability growth thanks to the increasingly greater expansion of outsourcing. Also, as has been the case in similar business sectors (e.g. ingredients) we think Intercos can play a leading role in the sector consolidation process, thus reinforcing its global leadership. Continuing R&D investments and an ability to innovate, along with greater geographical penetration with particular reference to APAC, and an increasing presence in the fast[1]growing and profitable Hair & Body segment, represent the key elements that will continue to make Intercos a particularly attractive story.