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Beauty may be in the eye of the beholder but the fast-growing cosmetics sector should have a broader appeal to investors. Fragrances, face creams and foundations have the attractive qualities of high margins, pricing power and a growing share of household budgets.
Those strengths are not necessarily reflected in the performance of German beauty retailer Douglas, which is down more than a tenth since its March IPO. Puig, a frequent industry outperformer behind brands such as Paco Rabanne and Nina Ricci, should have better luck. On Monday, it revealed its intention to float in Spain with a mooted valuation of up to €10bn.
The Barcelona-based group, whose name is pronounced “poodge”, was originally a licensed fragrance manufacturer. It has spent the past decade buying up brands, with 10 deals in 12 years including a majority stake in Charlotte Tilbury Beauty. Diversification into skincare and cosmetics is paying off; these were the fastest-growing segments last year. Plans to raise €1.25bn via listing could fund further deals and consolidate ownership of businesses in which it has acquired majority stakes.
A sizeable secondary sale is also expected from the Puig family, who will maintain control of the company via dual class shares.
Beauty is a category through which luxury groups engage with aspirational new consumers. Puig’s brand acquisition strategy is adding up. Its sales were ahead of the market last year, up by 19 per cent with make-up and skin care up by 23 and 31 per cent respectively. The latter is attributed to the success of Charlotte Tilbury, which is popular for products including its Magic Cream moisturiser.
Nonetheless, spending on beauty is expected to slow this year in line with a broader luxury slowdown. The sector might manage sales growth of 7 per cent this year, thinks Bernstein, down from 15 per cent in 2023. Hence the decline in Douglas’s share price. Shares in US-listed Ulta and e.l.f. have also suffered.
Despite this, Puig’s mooted valuation looks achievable. Assume it continues to outperform and sales grow by a 10th this year, ebitda margins stay at 20 per cent and net debt remains roughly constant. Then the enterprise value to ebitda multiple would be 10.5 times at a €10bn valuation. That would be well below L’Oréal on 20 times and below the 12 times that Coty and L’Occitane trade at.
Spain’s largest IPO in years is so far looking good.
andrew.whiffin@ft.com
