Company Reports

Shares of no-moat beauty product maker Puig slumped 14% on Sept. 6 following its first-half results update, likely due to a 27% drop in reported net profit. However, we think the market correction was too harsh, as the profit decline was mainly driven by one-time costs related to its May IPO. Underlying performance was solid, with 9.6% sales growth led by strength in its fragrance business (73% of sales) and a 7.4% increase in adjusted EBITDA. Our 2024 projections for sales and adjusted EBITDA to grow 10% and 12%, respectively, remain in place. Further, we plan no changes to our 10-year forecasts for high-single-digit percentage sales growth and a 20% average adjusted EBITDA margins, or our EUR 23 per share fair value estimate. Shares look slightly undervalued.

We initiate coverage on Puig with a fair value estimate of EUR 23 per share, which implies a 23 times multiple against our 2024 adjusted earnings estimate and an enterprise value to adjusted EBITDA multiple of 15 times. Shares look overvalued, trading at a 15% premium to our intrinsic valuation.

We think chairman and CEO Marc Puig has done a commendable job sharpening Puig’s premium focus and expanding its brand collection through acquisitions, thus positioning the small beauty product maker well to benefit from premiumization trends globally. That said, we’re not convinced Puig has carved out an economic moat, given its lack of brand intangibles and small scale relative to moaty peers L’Oreal and Estee Lauder.