Creightons: Shares are falling but investors are missing a trick

Creightons (CRL) is a Peterborough-based manufacturer of beauty products. Its product portfolio includes bath and shower care, haircare, body care and fragrances that are sold through private labels for high-street retailers and supermarket chains (Asda, Tesco, Aldi and Superdrug are just a few of its customers). It also provides contract manufacturing on behalf of third-party brand owners, and branded lines.

What sparked my interest 12 months ago was the company’s recovery potential. That’s because management was executing self-help measures to restore profitability, reduce costs, lower stock levels and cut debt. They have been successful: the operating profit margin more than doubled and led to an eye-catching 133 per cent improvement in operating profit in the 2025 financial year. Return on capital employed more than doubled to 12.9 per cent and net cash increased sevenfold to £1.5mn. Moreover, net cash has since increased to £2.9mn.

The fact that the shares are one of the laggards in the portfolio mainly reflects an 11 per cent dip in first-half pre-tax profit to £1.5mn on slightly higher revenue of £27.2mn in the new financial year. However, the performance was far better than the reported figures suggest.

Firstly, Creightons absorbed the impact of higher employer national insurance and minimum wage costs, which added £0.4mn to the wage bill in the six-month period. However, cost savings from efficiency gains and gross margin improvements (up from 44 per cent to 44.7 per cent) mitigated half the increase in overheads.

Secondly, Creightons’ focus is on category expansion and product diversification in its fast-growing private-label category (first-half revenue up 15 per cent to £16.6mn) involves recruiting personnel to drive sales growth and to ensure the business remains agile in a fast-moving market. Although investments involve a time lag before returns are realised, early benefits are clearly visible.

Thirdly, growth in private-label manufacturing activities mitigated the underperformance of the group’s small contract manufacturing operation, which relies on the performance of the third-party brands and reported lower revenue due to a key customer delaying a major launch until 2027.

Although there is an absence of analyst coverage, a similar second-half trading performance would deliver a full-year pre-tax profit of £3mn, albeit that is below the prior year. On this basis, the shares are rated on an enterprise valuation of less than six times likely operating profit. A 1.8 per cent dividend yield and 25 per cent share price discount to book value add to the attraction. Recovery buy.