Gear4music’s FY2020 results reflect the positive momentum of the company’s announcements so far this calendar year. The data re-confirm brisk sales growth but in our view improved profits and profitability is the salient story. Moreover, with an online distribution focus, a well sourced product range and clear evidence that its logistics are being run more efficiently, the company’s ability to deliver positive newsflow looks increasingly sustainable. FY2021 started on an exceptionally strong note.
Two of the pivotal issues flagged in recent research have now been firmly addressed. Gross margin gains & cost efficiencies have been stronger + quicker than expected, driving a record EBITDA margin in H2 (7.2%, +500bps). Capacity has also been created, which will supports future growth with only modest further investment. At the same time G4M has pivoted from cash burn to cash generation. After a strong start to FY21, helped in part by lock-down, and with last year’s initiatives yet to annualise, confidence is running high. Valuation is extremely undemanding for this growth play.
Performance in FY20 is substantially ahead of expectations; EBITDA is expected to be no less than £7.0m, equating to at least £5.6m pre-IFRS16, a beat of >36% versus our forecast (>52% in H2). While trading has strengthened as a result of Covid-19 lock-down and the channel shift, this has principally been a feature post period end. The determining factor in FY20 was successful execution of the strategic, commercial and operational initiatives outlined a year ago in response to growth pains in late 2018/early 2019. Despite several levers yet to contribute in full, gross margin improved 50bps more than forecast (+310bps) and cost ratios were 80bps better than expected. As a result, it has almost delivered FY21 forecasts in FY20. We are not upgrading FY21 at this stage, pending guidance in June, but the higher base, enhanced P&L KPIs and recent sales boost all bode well for forecast momentum - which the valuation discounts.
Gear4music’s sales increased by 9% to £120.3m in the year to 31st March 2020, according to today’s pre-close trading update. The company stated in an earlier (2 nd April 2020) RNS that FY2020 profits would be ahead of market expectations and this announcement goes on to indicate by how far. With an online distribution focus and positive financial newsflow, the company’s business model remains attractive. Moreover, it appears resistant to the current UK lockdown, as indicated in a relatively sanguine release about coronavirus on 18th March.
Caribbean Investment Holdings. Incorporated in Belize . CIHL primarily operates financial services businesses through its subsidiaries The Belize Bank Limited and Belize Bank International Limited, both located in Belize and international corporate services through Belize Corporate Services Limited. CIHL shares are also traded on the Bermuda Stock Exchange. Lord Ashcroft holds 75%. No capital raise. Due 28 April. £36m . 2019 net profit US$ 10.7m
Companies: G4M SNX AMYT ORPH VRS LGRS DODS BPM SIS EMH
Gear4music has issued a brief unscheduled update today, highlighting that profits for the year ended 31st March will be ahead of expectations. The business has successfully executed a number of strategic and operational changes over the year (in response to the challenges in 2018) and the benefits have emerged strongly. It reported 2 weeks ago that it had not been impacted by COVID19, and today it confirms that it has quickly reconfigured its operations in response to new government guidelines and has strict disciplines in place to ensure safety & continuity in its DCs. Early signs support the idea this product sector could be a beneficiary of consumers being confined at home for long periods, but only time will tell. We have not upgraded any forecasts pending more details in the update on 23 April.
The work to improve operational performance and gross margin continued to deliver results over the all-important 2-month peak trading period, with sales growth accompanied by significant gross margin improvement. As operating efficiencies are also beginning to be delivered too, management now expects full year profits to be at least in line with expectations. In addition, the capacity solutions being implemented at its 3 existing DCs will provide the necessary headroom to achieve its medium term growth plans without the need for further significant investment. This, and the enhanced level of profitability, means management can focus on driving new growth orientated projects during FY21. Having fixed the mechanics, 2020 is shaping up to be a good year for the group. Our fair value estimate is now 432p
Today’s Gear4music trading statement reports a buoyant end to the 2019 calendar year with sales advancing by 7%. Moreover, higher gross margins confirmed the benefit of a raised focus on profitable growth while fully invested logistics and warehousing augurs well going forward. Given a reassuringly positive message on full year FY2020 figures, valuation looks supportive.
Intention to float by Gemfields Group. No Capital Raise. Currently listed on JSE. (GML:JNB) at circa £122m. The Group's key producing assets, the Kagem emerald mine in Zambia (believed to be the world's single largest producing emerald mine) and the Montepuez ruby mine in Mozambique (one of the most significant recently discovered ruby deposits in the world), are both expected to have long mine-lives with potential for expansion. Also owns the Faberge brand. Due Valentines Day 2020.
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Gear4music is clearly in a far better position than at the start of the current calendar year. Interim results indicate that ahead of peak trading G4M is not only enjoying volume growth, but is also better placed to execute. Focus in H2 will be on margin restoration at some expense of sales. We adjust numbers accordingly. In our view, investors should focus on profit growth rather than sales. Moreover, we note the company’s arguably undemanding valuation.
Interims provide concrete evidence that strategic actions undertaken to boost gross margins and improve profitability are producing results. EBITDA doubled and EBITDA margin leapt 110bps. The gross margin potential exceeds the gain in H1 though so, alongside cost efficiencies, top line guidance has reduced to +10% (vs +23%) whilst being confident about meeting FY profit forecasts. Even at this early stage, any incremental growth should drop through at a high level, underlining the investment case as growth re-accelerates again next year. We estimate fair value at 300p.
G4M indicated in August that strategic and operational actions were yielding positive results, with the objective being improved gross margins. Since then the market has been holding on for quantification of sales and margin data to help cement the investment view, and the H1 update has not disappointed. Gross margin is up 250bps, 170bps higher than we had assumed, and sales increased 16% (only 3% lower than we assumed) against tough comps and despite being a significant transition period for multiple margin initiatives. Confidence in full year forecasts has therefore increased and G4M looks well placed ahead of its peak trading period. Our 12-month estimate of fair value remains unchanged at 300p. Interims on 12 Nov will provide further details about the improving margin and profitability.
Gear4music’s pre-close FY2020 H1 trading statement reported brisk 16% sales growth. However, investors should focus on a 250 basis points rise in gross margins. Moreover, G4M expects full year financials to meet company expectations, and EBITDA margin recovery should be a key driver. With its refocused growth strategy firmly in place, warehousing and logistics in order and an attractive current valuation, prospects for the share price look more positive.
Alongside its AGM today, Gear4music has issued a brief, but highly encouraging, update on progress. The specific actions to improve gross margins, and to ensure it is operationally robust ahead of the upcoming peak trading period, have continued to yield positive results. Now with 5 months of trading under its belt, and numerous initiatives progressively accumulating, confidence in the strategic plan and in forecasts is growing. These assume a moderation in sales growth, especially in the H1 transition phase, but only a modest amount of gross margin recovery. Given the share price is back roughly where it was after the January warning, and close to the all-time low, this looks like a timely entry point with a compelling short + long term investment case. Our 300p fair value estimate offers 60% upside
SEC S.p.A. Adm ission is follow ing a reverse takeover under Rule 14 by SEC S.p.A of Porta Com m unications plc, another AIM quoted company. No funds being raised. Due 4 September. Mkt cap c £9.9m. The merger will create a business with global fee income of around €80m and a host of PR agencies, including Newgate, Publicasity and Newington.
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A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
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Full year results slightly ahead; improving trend in trading since April
Walker Greenbank is a higher end interior furnishings business with well-established global brand names and manufacturing facilities in the UK. The Group has this morning released full year results to 31 January 2020, slightly ahead of our forecasts at the PBT and EPS levels. During the year, and against what was already a challenging wider market backdrop, brands such as Morris & Co as well as the group's core licensing revenue stream largely offset wider weakness in the UK and US markets. As would be expected, trading since year-end has been extremely difficult, with product sales c.35% down in the first five months of the current financial year. Encouragingly, product sales in the last four weeks are reported to have been 31% below the comparative period, reflecting a steadily improving trend since the beginning of April. At this stage we leave our forecasts under review but it is encouraging to see the more recent improvement in trading patterns, whilst internal actions and the refocused strategy continue to improve the outlook for the group.
Companies: Walker Greenbank
The ongoing pandemic only serves to underline business models that are robust, and those that aren’t. This morning’s trading update from UPGS puts them firmly in the winners’ category. As the company approaches the final weeks of FY2020, it not only reports “better than expected progress” against an uncertain business backdrop, but also that revenue and key profit measures for the year should be ahead of current market expectations. Furthermore, online as a portion of total business should record a fourth consecutive increase, providing additional flexibility and strength in the case of a second wave.
Companies: Up Global Sourcing
Photo-Me was trading in line with expectations until COVID-19 hit in the final months of FY 2020. FY 2020 sales declined by -5.6% to £215.4m including £22.7m sales lost due to COVID-19 as consumer activity was impacted significantly. The Board believes that activity levels could take a long time to return to pre-COVID-19 levels; a thorough review of the business is underway and restructuring programmes are being implemented to better align operations to the current trading conditions. Net cash at April 2020 was £7.9m, comprising gross cash of £66.5m and drawn debt facilities of £58.5m. A €30m additional credit facility was received in May and June.
Companies: Photo-Me International
UPGS released an unscheduled trading statement this morning which confirms better than expected numbers for FY2020 sales revenue, profitability, and net debt. A more encouraging outcome than previously envisaged when the company reported its interim results on 30th April.
AGM statement: upbeat
Companies: Sumo Group
Walker Greenbank has a tangible strategic impetus under its new management team with a clear business model migration plan. While COVID-19 related market effects are affecting near-term trading – and the decision not to pay an FY20 final dividend – they are also presenting opportunities. Our estimates remain suspended for now ahead of the AGM on 29 July when an update on trading and the financial position can be expected.
Red Dwarf, the very British sci-fi comedy franchise, ran for 11 seasons – most recently in 2017; and The Promised Land is a feature-length TV movie – out this year. Yes, the programme is an acquired taste. Strangely, too, many episodes are impacted by a virus or three (physiological, not main-frame).
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Warpaint has issued a brief, but positive, update alongside its AGM today. Sales have been at a higher level than anticipated in H1, albeit significantly below the prior year due to the pandemic. In line with management’s original ambitions, there has been an improvement in gross margin. Together with lower costs, which the furlough scheme has contributed towards, this has helped the group deliver a positive EBITDA in the half, with no erosion of cash. This is a good outcome and ahead of general market expectations, we believe, albeit there is no guidance or consensus for the year ahead.
Companies: Warpaint London
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
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Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
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Games Workshop’s (GAW) interim results are ahead of expectations. The highest rates of revenue growth were achieved in the channels with the highest operating margins, ie Trade (40% margin) and Online (64% margin). This has produced a strong improvement in free cash flow generation and ROCE has improved from 96% to 111%. We upgrade our forecasts for FY20 and FY21 by a further 3% following the 9% upgrade in November. Our DCF-based valuation increases by 11% to 5,748p.
Companies: Games Workshop Group
The phased reopening of Walker Greenbank’s two manufacturing facilities (both in the UK) is underway with Standfast & Barracks already operational and Anstey restarting this week. The company’s business model is such that near-term activity levels can be rebuilt gradually. It may also support new business development in the UK in due course compared to overseas supply sources. No new financial information was provided ahead of the company’s scheduled FY20 results announcement on 30 June, at which point activity levels during FY21 to date should also be disclosed. Our estimates remain suspended at this time.
Whether we know it or not, advanced materials are a core component in the everyday life of the everyday person. They are the key material in items we often disregard, such as printer inks and lotions, to objects which defy the laws of gravity like the Airbus A380 and London’s Shard. Furthermore, these materials are not only essential to many objects and structures, but, due to their superior qualities, are the key to the advancement of many industries. One such example is the use of carbon fibre which offers five to ten times more rigidness, stiffness, and strength than its aluminium counterpart. As a result of these impressive qualities, motorsport and athletics have improved ten-fold since their mainstream use and new records are broken every year.
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We’re just over three months in to 2019 and we’ve seen a 10% UK market rally, retracing much of the Q4 decline, such is the nature of fickle market sentiment. That said, many of the issues we wrote about three months ago that were impacting markets remain: notably Brexit, trade wars, geopolitics and global monetary policy. The 2019 rally thus far feels somewhat fragile, with competing forces of optimism on a potential trade deal which could underpin the rally, against the deterioration in underlying economic data that could ultimately undermine the recent market gains. In this context, we look at what the lead indicators and the market are telling us about the industrial cycle and the stocks most exposed to various industrial trends. The Q4 derating in short cycle industrials and autos had been vicious and while these sectors have seen a more solid footing in 2019, with earnings downgrades being priced in, it will likely take a trough in lead indicators before short cycle stocks can start to perform again and re-rate relative to the market.
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