LHV Institutional 'MADARA Cosmetics Annual Review, July 27th, 2020'

* MADARA Cosmetics AS (hereafter referred to as ‘MADARA’ or the ‘Company’), based in Latvia, is a leading, fast-growing producer of organic cosmetics and skincare products. It was founded in 2006 and has already established a firm position in the Baltic and Finnish markets, with an increasing presence in other countries. MADARA is on track to become a leading European brand in natural and organic cosmetics. The Company’s underlying strengths include developing its own unique cosmetics and skincare formulae, its ECOCERT certification, and its in-house design and PR agency.
* Considering the ongoing coronavirus pandemic, given the relatively large and growing portion of e-store sales in its revenue mix, we believe the Company proves more resilient throughout this crisis compared to many other discretionary consumer stories. Also, its performance could be further backed by the ‘lipstick effect’, stating that consumers tend to prefer less costly beauty and luxury goods during uncertain times.
* In valuing the shares of MADARA, we are following two main valuation methods: 1) an income approach, based on the Discounted Cash Flow (‘DCF’) calculations and 2) a market approach, based on valuation multiples of a peer group of comparable listed companies. We have used the weighted average of values derived from the DCF and peer valuation, applying different weights to each method. Overall, based on our current projections for MADARA and other assumptions, we decided to slightly increase our fair value range (‘FVR’) for the stock from the previous EUR 8.20-9.00 to EUR 8.60-9.40 per share. This report contains a full set of financial forecasts and is useful for gaining an initial insight into the company. Please also refer to the tables and charts in the attachment.