Even among all the disasters that we wearily eye on the ASX, this must rank amongst the worst run companies ever to reach this point. You can only shake your head in dismay.

News today (via 12ft ladder), is that BWX has entered voluntary admin. Bye bye BWX.

I was a holder last year (or maybe the year before?) But sold out in my portfolio-war on retail stocks. Retail seems so fickle to me, and its volatility, to me, comes from its products and users, and not investors (i.e. in comparison to tech shares, who's share price is volatile because of the investor sentiment, disconnected from the product).

Awkwardly I still buy sukin products from the supermarket when they are on sale, and genuinely think natural products feel different to the other less-natural ones.

Today a popular investment advice service called BWX a Spec Buy after the company announced an equity raising and a subsequent share price plunge of 40% ($1.17 to 70c)

As a subscriber I thought I should do my own due diligence.

The first cut for me is always the fundamentals, starting with the ROE. After all, ROE is the best return you can expect from a business if it were appropriately priced.

One look at the ROE chart and the red flag is flying! Next I look at some analyst earnings forecasts which has BWX continuing on a ROE of circa 5% over the next 3 years. Usually, this would be enough for me to look elsewhere for a higher quality business. However since this was a recommendation I’ll take the next step…valuation.

Lets assume it’s a value play. Using McNivens StockVal formula assuming APC = 5%, 70% of earnings reinvested (RI), Shareholder equity of $2.03 (E), and a required return of 10% (RR):

V = (APC/RR x RI + D)/RR x E

= 66c

BWX has traded as low as 66c per share today and theoretically should give you a 10% return going forward.

But this still doesn’t interest me as it’s not a high quality business, particularly when it needs to raise equity to keep going on a projected ROE of 5%!

I have several better quality business on my watch list that should provide me with much higher returns than BWX over the next 3 years.

BWX doesn’t make it to my watch list!

BWX are raising $23.2m through a wholesale placement, plus an entitlement offer.

> Offer price of A$0.60 per New Share (“Offer Price”), representing a 48.7% discount to last closing price of A$1.17 per BWX share as at 23 June 2022, the last trading day before BWX entered a trading halt.

That's a significant discount. I'm guessing they looked at sales projections and hit the panic button.

This business has a chequered history, both with former management's actions when they audaciously attempted to take it private in cohoots with PE, and its operating results. None of them remain with the company though, and it has churned through another CEO (Dave Fenlon) since.

However, after yesterday's update and corresponding share price drop, it is setting up as an attractive takeover candidate for a larger player in the cosmetics industry if the ship is not righted over the next 12-18 months, particularly at around these prices which is ~7-8x forecast FY22 operating profits.

The company's porttfolio of skincare brands (particularly its flagship Sukin) are still category leaders with higher than average gross margins (~60%) for its industry, the company is profitable both on a net income and cash flow basis, and has a clean balance sheet. It has also made investments in automating manufacturing and increasing production capacity, which while a drag on near-term results should bear fruit from FY23 onwards.

Finally, we had a spate of director buying after the HY results at significantly higher prices, which is an indication of insiders' views on the worth of the business.

High-risk, particularly in this market and macro environment, but worth a shot at these levels in my view. DYOR.