Bloomberg — Brazilian cosmetics maker Natura &Co (NTCO3) is assessing options to unlock value at its high-end brand Aesop as the company seeks to restore investor confidence following a 76% stock plunge over the past 15 months. The shares rebounded as much as 18% Tuesday.
The Sao Paulo-based company will start studies for a possible initial public offering of Aesop, or a spinoff that could be followed by a public offering, the company said in a filing Monday. The announcement prompted JPMorgan Chase & Co. to upgrade Natura shares to overweight from neutral.
The move is part of a broader overhaul being orchestrated by Fabio Barbosa, who took over as chief executive officer earlier this year. But Natura’s ambitions to expand globally have faced a harsh reality check amid disruptions brought on by the coronavirus pandemic and Russia’s invasion of Ukraine. While Aesop’s sales were seen by analysts as the main positive highlight in the second quarter, businesses such as Avon and Body Shop grew at a slower-than-expected pace.
The woes had some longtime Natura investors ditching bets on the stock. The company shed about 63 billion reais ($12 billion) in market value through Monday since peaking in July last year.
On a conference call with analysts following the second-quarter results, Chief Financial Officer Guilherme Castellan said the company was always on the lookout to “optimize its footprint” and could opt for exiting some markets if needed.
Welcomed move
The potential IPO or spinoff would be “bringing to light” the valuation of one of Natura’s fastest-growing business units, Citigroup Inc. analysts including Joao Pedro Soares wrote in a note. They estimate Aesop could trade at as much as 20 times EV to Ebitda, a “considerable premium” to Natura’s current 5.7 times.
“That said, we believe the asset would command higher multiples in a more favorable market environment, especially considering the current lack of visibility stemming from the conflict in Eastern Europe,” they said.
The potential spinoff would unlock value for Natura, while the company could also opt for discontinuating non-profitable operations and potentially selling the Body Shop brand, analyst Joseph Giordano said in a note. “We have a material stock trigger ahead of us.”
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