Skin Elements Limited seeks to raise up to $4.5m in an initial public offering (IPO) to fund the commercialisation of its organic skin care product range.
Regardless of the industry we note that consumers are increasingly looking for organic products. The need for these type of sustainable or natural products is on the rise, as everyday consumers are willing to pay a premium for products that are free of chemicals or manufactured in an ethical way.
Skin Elements Limited is aiming to break into this fast growing market by offering natural consumer products. Following eight years of research and development, the company is now going public to raise a maximum of $4.5 million to fund the commercialisation of its organic skin care product range. The majority of the funds will be used for sales, marketing and product development as management plans to sell its products to retail clients via wholesalers. While the company does not presently generate revenue, it has completed an initial round of ‘test marketing’ which appears to have been pleasing enough to justify going public.
The actual owner of the product is SE Operation Pty Ltd, which is now part of Skin Elements, after entering into a share sale agreement which saw Skin Elements acquire the entire issued share capital. The newly formed group now owns the Soléo Organics product range as well as the Elizabeth Jane Natural Cosmetics line, which is not ready for commercialisation yet. The lead product is the Soléo Organics natural sunscreen which is only made of “organic” and “natural” ingredients. The company provides a comprehensive definition in its prospectus, explaining what these words actually mean. It claims that all products are “free of synthetic chemicals” and “manufactured in such a way to preserve the integrity of the ingredients”.
IPO investors will be looking out for any signs of validation. Initial test marketing has shown some success and while it is yet unclear if there will be sufficient interest for its products, a major validation signal for its product would be a binding partnership agreements with a commercial wholesalers. The Company seeks to enter a market that is currently witnessing strong growth, which could potentially generate interest for the stock, even in the absence of revenue and earnings. However in order to deliver long-term shareholder value, management has
The main hurdles include the company’s current financial position, reliance on external capital and unproven marketing strategy. It is also worth noting that entry barriers in this type of industry are generally quite low and the competitive environment challenging.
Skin Elements offers speculative exposure to the demand for organic consumer products. It appears that management simply tries to ‘have a go’ at commercialising a product that could potentially benefit from growth in consumer demand for organic products. Over the past 12 months other companies offering similar products have attracted shareholder interest, despite overall volatile market conditions. Nevertheless, the outlook is overall speculative as Skin Elements is not yet generating revenue and has limited historical data points that could be used to evaluate the company appropriately.
Author: Imran Valibhoy
Feb 15, 2016
Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.