My journey into micro-caps has started. Creightons could even be called a nano-cap with a market cap of only 22 million GBP. My market cap rule is not to buy companies below 100 million USD. I am scared that an incident such as a flood, a fire, theft, or a fraudulent employee would disrupt a small business too much and damage it permanently, even with proper insurance in place.
I decided to take a chance with Creightons anyway. The company has been under sensible and conservative management for at least 20 years. If you want to get an impression, YouTube provides an online presentation delivered by the current management. Financially, the company offers everything a value investor could wish for: insider ownership, high ROIC, free cash flow, little debt and consistent growth. The company is too small to be investable for professional funds. That may be the reason why the stock valuation seems low. I bought at an average of 0.32 GBP between June and August 2023, during which I accumulated a 4% position in my portfolio. Based on my DCF calculation, I estimate the stock's fair value to be 0.55 GBP.
Creightons invents, produces and distributes cosmetics and personal care items. They supply British supermarkets like Tesco, Sainsbury's and Boots with their house brands in these categories. They also do contract manufacturing, which means they can deliver one-off inventory orders placed by third-party personal care brands. For a detailed description of Creightons, I refer to this blog of Eddie Lloyd. A year later, Eddie wrote an update which includes a valuation model.
Another long-term shareholder is Adrian Ford of the Overlooked and Undervalued substack. Adrian highlights an important change in Creighton's strategy. The company bought and developed several own brands: Feather and Down, The Curl Company, Balance Active and Emma Hardie. These brands have the potential to grow.
Especially Emma Hardie is interesting. I did a quick and informal online review of this premium skincare brand. Emma Hardie's presence on TikTok is small compared to large brands like L'Occitane, but there are still a few dozen reviews, instruction clips and promotional clips. Emma Hardie has 63,000 followers on Instagram. The Amazon user reviews of their top-selling products are overall good. Creightons understands it has to work with these new media channels. It is nothing like the cases of HAI-O and Able Global, where the lack of presence on social platforms is unsettling.
I am betting that Emma Hardie or one of the other brands will break through internationally and drive Creightons' revenues upwards. Should the team fail, the house brand and contract manufacturing business will still be there. Heads, I Win; Tails, I Don't Lose Much.
Disclaimer: This investment is risky because of Creightons' small market cap and illiquidity. Do not invest without doing your own research first. The share trades under the SETSqx trading system of the LSE. This means there is only trading at 8am, 9am, 11am, 2pm and 4:35pm UK time.
Disclosure: Long Creightons. Sold HAI-O and Able Global earlier this year.