Gear4Music (G4M)

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Gear4Music G4M Logo

The largest UK based online retailer of musical instruments and music equipment

5-Jan-2018 – 770p – £160.7m – PER 59.3

Trading Update For The 4 Months September 2017 To December 2017 – Revenues up 42% to £34.564m, reflecting same (42%) increase in own brand and other brand. Trading is “in line with the board’s expectations”. The group is confident it “will continue to grow rapidly over the medium and longer term, as we continue our mission to become the best musical instrument and equipment retailer in Europe”.

This is impressive growth indeed but I have my reservations. The Operating Margin is very small (2.67%), the ROCE is not particularly impressive (7.97%) and the PER is 59.3. Comparing 2018 forecasts and 2019 forecasts, Revenue £81.3 vs £102.1 (+25%), Profit £2.14m vs £2.8m (+30%). On a PER of 59.3 they’re going to have to surprise on the upside here.

Subsequent Note – And the products I looked at were 10%+ cheaper on Amazon.

2-Mar-2018 – 642p – £134.0m – PER 49.6

Trading Update For The 12 Months To End February 2018 – Wow, that’s a speedy update, not expecting bad news in this one! And, Revenue is up 43% from £80.1m, website conversion is up from 2.75% to 3.25%, active customers up 39% and own brand sales are keeping pace with other brand sales. But, I think this a fly in the ointment – “EBITDA for the second half of FY18 will be ahead of the six-month period ended 28 February 2017, although as a result of the investments we have made during the year into our customer proposition, infrastructure, staff, systems and marketing, we expect EBITDA for the full financial year ended 28 February 2018 to be in line with our FY17 result”.

I still have reservations here and will remain Neutral for now. Although I am coming round to the view that if that’s the end of the spending then Margin and Profit here could go gangbusters!

15-May-2018 – 726p – £146.9m – PER 61.0

Preliminary Unaudited Results For The 12 Months To End February 2018 – Revenue up 43% to £80.1m, PBT down -43% to £1,5m. Active customers up 39% and conversion increased from 2.75% to 3.25%. 2019 trading so far is in-line, expecting to meet expectations.

I am going to remain Neutral here, still not entirely convinced on a PER of 61.

27-Jul-2018 – 658p – £137.8m – PER 50.5

AGM Trading Update – Distribution centre relocation and upgrade on-track – Confident of meeting FY expectations (as Revenue growth is strong in a highly competitive market (strange to mention this, they know it already and so do we)).

Having dropped from a PER of 60+ I am pondering whether this is looking more attractive now. I think it is and if this update was more upbeat it would have made it even more so – I will remain Neutral and keep an eye out for that Trading Update in September.

7-Sep-2018 – 617p – £129.2m – PER 45.1

Trading Update For The 6 Months To End August 2018 – Revenue up 36% (which is ahead of expectations) to £42.5m (FY18: £31.2m) backed up with active customer numbers up 40% to 547,000. Expects FY EBITDA to be in-line (but mention of margins seems to imply PBT will not be – Perhaps). There’s a strange year end (by a month) change too.

Gets more attractive as the price drops but still not yet convinced here – The mention of margins is a bit of a put off (not sure if this is a small (real, not EBITDA) profit warning), I remain Neutral for now.

16-Oct-2018 – 482.5p – £101.1m – PER 34.1

Trading Update For The 6 Months To End August 2018 – Revenue up 36% with a 40% increase in active customers (gross margin down 230bps). Strong Revenue growth in H2 to date means trading is in-line with FY (Revenue and EBIDTA (no mention of Profit or EPS)) expectations.

This keeps looking more attractive the cheaper it gets (even with a slight reduction in Gross Margin) – I would just like to see the Actuals here (the real Profits and EPS) – Remaining more tempted but still Neutral for now.

4-Jan-2019 – 510p – £107m – PER 33.5

Trading Update For The 4 Months To End December 2018 – Revenue up 41% (split evenly between own brand and other brand) with active customers up 47%. These sales were above of expectations and were at maximum capacity (during Black Friday and Christmas), so additional sales could not be taken. Board now expects FY EBITDA to be slightly below last year, cause of lower margins. Working on plans to expand distribution capacity.

This is a rather poor update and I remain unconvinced – I remain on the side-lines for now.

2-Apr-2019 – 215p – £45m – PER 28

Trading Update For The 13 Months To End March 2019 – Revenue up 36%, Customer numbers up 53%, Website conversion up from 3.25% to 3.4%. Casg at £5m (£3.5m last time). Margins impact with EBITDA to be no less than £2m.

There’s loads of waffle in this update, too much for me to take in with limited time in the morning. Gut feel, I remain unconvinced here but will keep an eye out for revised Broker notes.

25-Jun-2019 – 230p – £48m – PER 50.7

Results For The 12 Months To End March 2019 – Revenue up 48% and it’s a Loss of -£0.163m versus a Profit of £1.386m last time.

I remain unconvinced here.

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