We have updated our price estimate for Revlon to reflect the recent Q2 2013 results and certain segmental trends. Our updated price estimate of $25 for Revlon is almost in line with the current market price. For more on the acquisition and its impacts you can see our recent note: Revlon’s Colomer Acquisition Brings Expansion And More Debt
Here are the key changes/ adjustments we have made to our model –
- Color Cosmetic & Hair Care Market Share: Color cosmetics have shown strong growth in Latin America. We have updated our 2013 forecast for the global color cosmetic market from $50 billion to $57 billion at present. Since the hair care products segment has also shown strong growth momentum so far this year, we have marginally increase our estimate for the 2013 global market size.
- Acquisition Of Colomer: With the acquisition of Colomer on the cards, we expect Revlon’s hair color market share to expand in the future. More than 50% of Colomer’s sales come from EMEA markets where revenues have been declining for Revlon. We now forecast 2013 revenues to expand by around 2% and grow at an average of around 4% for the rest of our review period. In our earlier model we were estimating Revlon’s hair care revenues to grow at an average of 2% annually. Additionally, we expect Colomer’s acquisition to strengthen Revlon’s skin care fragrance products portfolio. We now expect this segment to grow at a CAGR of over 6% as compared to just over 5% in our earlier model.
- Marginal Increase In Profit Margins: EBITDA margins are set to increase with lower interest expenses resulting from debt repayments and a reduction in operational costs from Revlon. Additionally, professional products from Colomer have higher margins which would further increase margins for Revlon in the hair care and skin care segments. However, we are cautious in estimating profit margins for Revlon due to the significant debt load that the company would have with the Colomer acquisition. We have revised our margin forecast to be slightly higher going forward, which lifted our estimates.
- Capital Expenditure Revised: We have revised our capital expenditures forecast based on company guidance. Additionally, we have assumed moderate growth rate for capital expenditures and updated our forecast methodology which resulted in a meaningful revision.