Exciting news! TAMIM Australian All Caps portfolio manager Ron Shamgar has been talking about this small cap as a potential takeover with significant upside, and the story is playing out right now.
As mentioned in Ron’s February 2023 report, we had been keeping an eye on Silk Laser (SLA.ASX) for the past year and built a position as the share price offered didn’t line up with the business performance and sector comparables. We're thrilled to see that talks of a buyout are underway. As one of Australia's largest skincare clinic networks, Silk Laser offers consumers a range of nonsurgical aesthetic products and services, including laser hair removal, cosmetic injectables, skin treatments, body contouring, and skincare products.
Despite the wider market thinking that the cosmetics industry is discretionary, Silk Laser has shown that it's actually quite defensive. Economists call this the "lipstick effect," which means that consumers continue to buy feel-good goods and services through tougher economic times.
Silk Laser ticks all the boxes for the kind of business we're looking for. It's founder-led (MD/Founder owns 5%), has a track record of growth (consistent annual growth excluding COVID impact), has a strong balance sheet ($10 million net debt), is profitable and cash-generative, and has a loyal customer base.
At their IPO two years ago, Silk Laser management targeted 150 clinics, which the company is now well on track to reach by the end of FY23. The Company’s services are positioned at the mid-price point of the market, and we believe that its client demographic will prioritise spending on higher-margin injectables in a tougher economic environment over other discretionary services.
The sector has seen significant consolidation in the last 12 months, with Wesfarmers (ASX:WES) acquiring Clear Skin network as part of the API acquisition. Private equity firms have also been active in the space, with the largest transaction of Laser Clinics Australia made by PE several years ago.
This is a great reminder of the importance of patience when it comes to investment strategy. Don't get distracted when the underlying business continues to line up with your investment thesis. We're confident that Silk Laser is a strong contender in the industry, and we look forward to seeing what the future holds for the Company as the buyout offer story unfolds..
Disclaimer: Silk Laser (SLA.ASX) is currently held in the TAMIM Fund: Australia All Cap portfolio.
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TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.
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