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G4M’s full-year results to 31 March were in line with guidance given in its year-end trading update in April. The most important aspect of these results, however, is a further strengthening in top-line sales momentum from the double-digit growth since mid-March, accompanied by increasing gross margins. We view this as the result of G4M’s relaunch of its growth strategy in June 2024, supported by a more favourable competitive backdrop. With board expectations for FY26 lifted by the positive start to the year, we have accordingly increased our FY26E forecasts.
Gear4music (Holdings) PLC
G4M has re-emerged fitter than ever from the post-covid slump and related challenges. It has also navigated bumps in the road from distressed competitor discounting; while there were PBT drags in FY25 totalling c£2m, these shouldn’t recur. Crucially, weak operators are failing. Three major competitors failed in Q2. Although early days, there is potential for significant UK/EU market share transfer as a result, in addition to margin and efficiency opportunities. Today’s 15% EPS upgrade assumes only a fraction of this, leaving risk to the upside. Buy.
Further to its recent asset purchase from GAK in April, G4M has announced a similar asset purchase from the administrators of the fourth-largest UK musical instruments retailer, which traded as ‘PMT Play Music Today’. G4M has purchased stock, alongside certain intangible assets, notably websites, trademarks and commercial data. This opportunistic deal should be viewed primarily as another gross margin opportunity, while also underlining the ongoing consolidation within the musical instruments sector.
2 weeks ago markets questioned whether events that impacted sales and margin in Q4 would be positive for G4M. But today’s update clearly confirms the benefits of big changes in the competitive landscape, with 1) a great asset deal from GAK’s administration, and 2) sales growth reaccelerating to >10% in the last 30 days (since GAK/BAX ceased trading). We said we would look for downgrades to reverse as G4M’s market position and growth potential strengthen, and this update is a big step forward in this regard. Buy on 2.8x EV/EBITDA.
G4M has published a positive trading update for both its UK and European operations with recent double-digit like-for like (LFL) sales growth. With two significant price discounters in the UK and wider European markets going into insolvency recently, this should not only result in a more benign pricing environment but also other commercial upsides, including market share and gross margin gains, and opportunistic asset purchases.
Gear4music’s FY25 trading update shows that its performance has been impacted by a more subdued than expected Q4. This resulted mostly from aggressive price discounting by underperforming competitors in both the UK and Europe, also adversely impacting gross margin. Exit run-rates provide an early indication that this competition could be lessening. While FY25 performance shows year-on-year (YOY) improvement over FY24 on most key measures, these fall shy of previous expectations. G4M has guided to FY25 EBITDA of £10.0m and PBT of £1.6m.
Ordinarily a downgrade would be a disappointment and, for investors with short term horizons, this is how today will seem. However, look deeper into events that impacted sales and margin in Q4, and you will see a big change in G4M’s competitive landscape with scope for market share gains and a more stable pricing environment. These benefits can’t be proven today, but we would look for downgrades to reverse as this winner’s market position and growth potential strengthen. We have raised our target multiple to 6x (5x) and our target price is unchanged.
Driven by a strong Dec, sales growth accelerated in the last 6 weeks of Q3. With continued pricing discipline, own brand expansion, and the likelihood of cost efficiencies across the P&L, G4M is well on track to deliver FY EBITDA on a broad range of sales in Q4. Confidence in the growth outlook continues to build, but the shares have gone backwards, leaving G4M on 3.0x Mar’26 EV/EBITDA. The 66% TSR uses only modest target multiples and will roll forward in Apr.
G4M has achieved a very strong performance over its peak seasonal Q3 trading period to end-December 2024. Group revenues increased by 6% to £49.0m (vs £46.4m) despite the challenging consumer backdrop in many markets. This was achieved with a gross margin of 28.1% (28.2% Q3 FY24), an increase of 140bps over the margin achieved in H1 FY25. These results underline the good progress being made under the group’s refreshed strategy focusing on profitable growth. On the back of this robust trading performance, the group says FY25E EBITDA remains in line with consensus expectations of £11.7m, with our forecasts therefore unchanged.
But for some initial teething pains implementing its new AI-led marketing system, the growth plan that was formalised in June would already be delivering a step-change in growth and profitability. It did return to modest growth in Q2, and this has strengthened so far in Q3. While markets may choose to wait until the Q3 update to get full validation of the inflection in performance, which unchanged FY guidance implies, we recommend investors take advantage of the lowly valuation (3x EBITDA) which does not price in the 70% forward EPS CAGR. Buy.
G4M’s interim results were in line with last month’s detailed trading update. More encouragingly and importantly, FY25E’s sequential quarterly improvement in revenue growth continues, with 5% revenue growth achieved in Q3 to date. This has been delivered against the backdrop of a challenging consumer environment, most notably in G4M’s European markets. With November and December typically accounting for around a quarter of annual revenues, this is propitious for the full-year outturn, which G4M says remains in line with consensus market expectations.
But for some initial teething pains implementing its new AI-led marketing system, the growth plan that was formalised in June would already be delivering a step-change in growth and improved profitability. It did return to modest growth in Q2, and this has strengthened so far in October. But investors will need to wait until the Q3 update to get full validation of the inflection in performance and profitability which unchanged FY guidance implies. With G4M trading on only 3.5x EV/EBITDA (0.2x EV/sales) next year, the shares are a Buy.
G4M’s H1 trading update to 30 September shows a sequential step-up in quarterly revenue performance, with further growth momentum achieved in October to date. The H1 reported loss (LBT) is expected to deliver an improvement of around £0.7m over H1 FY24, despite total revenues being slightly down and a small decrease in gross margin percentage. This points to good cost management and financial discipline. The UK has performed well, the second-hand platform is showing strong traction with customers, and the group has reduced H1 net debt by a further £3.6m.
Trading so far in H1 has been in line with expectations, and G4M remains confident in the delivery of its medium and longer-term profitable growth strategy. Today’s AGM update indicates that results from this renewed focus on growth are expected to start in H2. We outlined the potential from the growth strategy in our last research note, confidence in which led us to upgrade our target price for a second time in quick succession. We re-iterate Buy.
G4M’s FY24 results were in line with the headlines delivered in the April trading update, with margin and profit recovery despite a top-line decline, and an impressive reduction in net debt. Alongside a number of board changes confirmed for 5 July, G4M has unveiled a refreshed and updated strategy to drive profitable sales growth over the medium term from the stabilised base and return to positive PBT achieved in FY24.
G4M has successfully improved margins, profitability and FCF. Alongside w/c optimisation, there has been a significant reduction in ND, which we now expect to reduce to nil in 2 years, addressing a pivotal issue for many investors. Enhancements to its tech platform and customer proposition have been made, and strategic initiatives are now starting to bear fruit. This gives management the confidence to refresh its growth strategy, which points to a 3-year EPS CAGR of c70%. Trading on 3x EV/EBITDA and with a PEG <0.2x now is the time buy, with a near 90% TSR on offer compared to our target price which has been raised for a 2nd time to 245p.
Today’s FY update will be well received. Despite well-documented market challenges, marginal sales declines in Q4 mark an improvement on Q3 and both revenue/EBITDA are in line with expectations. More importantly, it made further progress reducing stock, afforded by cost savings. This drove a £4.5m FCF beat, halving ND to £7m and addressing a pivotal issue. Leverage is now <1x while retaining >£7m freehold. Good strategic progress has been made and profits are not market dependent. The board succession plan announced today looks orderly and should ensure a smooth transition. Buy on 3.6x EV/EBITDA, with new 199p target.
At its FY23 results in June 2023, G4M announced its intention to focus on product margins, overhead cost reduction, and efficiency ahead of revenue growth, along with further net debt reduction, in FY24. The FY24 year-end trading update confirms G4M has delivered on these rebalanced priorities, with gross margin rising and net debt almost halving compared with FY23. Cost savings achieved in FY24 and the continued development of higher-margin categories should deliver further upside in FY25E.
The group’s strategic focus on profitability has made further progress in the all-important quarter. G4M is therefore confident the actions it has taken during FY24 to improve gross margins, and reduce costs and net debt, position it well for profitable growth in FY25. Our target price is left unchanged for now at 182p. This is based on 5.0x EV/EBITDA. Margin expansion, better FCF and lower ND, which are all pivotal issues, should support a higher multiple though. We therefore re-iterate a Buy recommendation on the stock.
G4M’s pattern of trading across the Q3 peak period (to 31 December) closely mirrored that seen in H1. UK revenues were marginally higher, while total group revenues were 6% lower than last year, reflecting the challenging market conditions in Europe. A strong 260bp advance in gross margin more than offset the revenue decline, delivering a £0.4m increase in gross profit against Q3 FY23. Combined with cost reductions that were in line with Board expectations, the group continues resolutely to focus on its objective of prioritising profitability over top-line growth. This in turn ensures that G4M is well positioned to deliver profitable growth in FY25E.
Gear4music has made good progress in H1 against its objective to establish a higher margin business by prioritising gross margins and reducing costs. PBT guidance has been re-iterated on lower sales, and capex savings see ND forecasts improve. Our target price is left unchanged for the time-being at 182p. This is based on 5.0x EV/EBITDA. Margin expansion, better FCF and lower ND, which are all pivotal issues, should support a higher multiple, though, even on lower sales which should increase market confidence in forecasts. We therefore remain at Buy.
G4M’s interim results clearly reflect the group’s previously expounded prioritisation of improved gross margins and lower costs over revenue growth against a difficult market backdrop. The former goal delivered an 80bps increase in gross margin, while the cash savings initiatives announced in October will bear fruit from H2 and beyond. Hence, despite G4M resetting FY24E revenue expectations to £144m (vs FY23’s £152m), the FY24E adjusted profit outlook remains in line with consensus market expectations.
Good progress was made in H1 prioritising gross margin and cost reductions to enhance profitability in the current challenging backdrop. Annualised cash savings of £4m were made, c£1.7m (>4%) from opex and c£2.3m (c30%) from capex which, alongside lower stock, reinforces net debt reduction. Growing forecast confidence supports ongoing re-rating.
The shape of G4M’s trading performance in H1 (to 30 September) clearly reflects the strategic prioritisation of gross margin and cost efficiencies over revenue growth in a challenging market. This strategy was clearly signposted at the FY23 results in June. While total revenue fell back 6% in the period (£62.6m vs £66.3m), an offsetting 80bps gross margin improvement holds the expected gross profit decline to 3% (£17.0m vs £17.4m). With H2 set to benefit from the £4m of annualised cash savings instigated in H1, G4M believes that the FY24E full-year outlook is in line with consensus market expectations.
Trading in the 1st 5 months has been in line with expectations and G4M is well positioned for the upcoming peak period. Pre-owned has got off to a good start in the UK, and has just launched in Europe too. Development of this incremental revenue stream looks timely given the cost-of-living crisis has boosted the circular economy. In the plausible event profit forecasts are delivered via higher profit margins (a pivotal issue) on less sales, this may be a catalyst for rating expansion (on 3x EV/EBITDA, 16% FCF yield) with the share price near its all-time low.
FY23 was a tough year, given several external macro headwinds on top of the margin drag from its internal decision to reduce elevated stock levels. If the goal was to reduce ND while also embedding future growth initiatives, then FY23 should be seen as a success. Conditions for discretionary spending remain difficult across its markets, so the focus is on leveraging recent investments, increasing product margins and driving efficiency. Although H2-weighted, FY24 expectations look underpinned by a number of self-help measures. Sentiment should improve on the back of improved FCF and, with the long term equity story intact, we stay at Buy.
G4M delivered FY23 full year results in line with the guidance given in its April trading update. EBITDA came in at £7.4m with year-end net debt of £14.5m. The consumer backdrop remains challenging, especially for retailers of primarily discretionary items. In March, G4M launched its second-hand platform, which plays to both customer service and convenience as well as to its own circular economy credentials. This enhanced margin service will be expanded in terms of product and geographic coverage over the coming year.
In tough conditions for discretionary spending, G4M grew sales in Q4, implying market share gains continued. Some of this growth, however, reflects efforts to reduce elevated stock levels. This has impacted gross margin and profits, with Mar’23/Mar’24 EBITDA downgraded c15%. However, the goal of reducing net debt was a success, falling more than markets expected and rolling through to outer years. Leverage is well within the bank’s covenants. Margins and FCF can build from here in the absence of the promotional activity, and drive re-rating. Buy
Weaker-than-expected Q4 trading, notably in February and March against soft comparatives, has resulted in G4M guiding to an FY23E EBITDA outturn of between £7.3m and £7.7m, below market expectations. Gross margin of 25.7% (vs 27.8% in FY22) reflected inventory reduction in a tough trading environment. However, year-end net debt of £14.5m is £3m better than expectations of £17.5m, and comfortably within G4M’s borrowing facility.
Momentum yet to be regained. We had hoped for an improved performance in the Group’s final quarter. However, revenue was flat and gross margin down. For the year to March Total Sales increased 3% to £152m with Gross Margin down 210 basis points to 25.7%. EBITDA is now expected to be in the range of £7.3m - £7.7m, around £1m lower than our previous forecast. Cash performance warrants attention. Whilst the challenging outlook for the consumer sector has weighed heavily on the stock, it is arguably the balance sheet which has become the key area of concern. We believe that management has gone a considerable way to alleviating these fears with a near £10m y-o-y reduction in net debt to £14.5m, largely driven by the sell through of inventories which had reached record levels (>30% of revenue) as management navigated supply chain constraints. This is 24% below our previous estimate (£19.3m) and with further reductions expected, net debt is now forecast to be near half previous expectations, reaching £10.6m in the next two years. Downgrades to forecasts and target price, retain BUY stance. Whilst investor concerns over the consumer environment have been justified, we believe that the valuation of the company has become detached from the reality. Gear4music remains a growth company, and with net debt:EBITDA at <2x, plus freehold properties valued at >£8m, we believe that it has a sound balance sheet and is in a position to continue to invest to generate further growth. Our DCF-driven target price reduces to 302p, which still indicates substantial upside to the stock, and we retain our BUY recommendation.
G4M delivered a solid performance over its peak Q3 trading period, with financial performance in line with Board expectations. Group sales rose 5% over last year, with Europe performing particularly strongly (+11%). In the UK, sales were flat, with Royal Mail strikes and their knock-on impacts compounding the effects of weaker consumer sentiment. Lower marketing spend and labour efficiencies offset a temporarily softer gross margin, with G4M reiterating that FY23E EBITDA and net debt reduction are in line with consensus market expectations. Our forecasts therefore remain unchanged.
Growth of 5% over peak includes the adverse effect of Royal Mail strikes in the UK in Dec, offset by expansion in Europe. A temporary margin fall, in part due to targeted stock reduction which supports ND reduction, has been offset by labour efficiencies and lower marketing costs. It remains on track to meet FY EBITDA and lower ND, concerns about which have weighed on the rating despite significant balance sheet flexibility. Growing confidence here is helpful.
UK held up, EU double-digit growth For the three-month period to 31st December (Gear4music’s Q3), Revenue increased 5% to £49.5m. Within this, the UK was flat year-on-year at £26.0m whilst EU and RoW was up 11% to £23.5m. It is worth noting that Royal Mail strikes had a significant impact on the ecommerce sector, increasing couriers’ delivery times and Gear4music was forced to offer an earlier- pre-Christmas order cut-off date. Cash is king As per previous management guidance, an element of gross margin has been sacrificed, down 240bps to 25.6%; however, this has been largely offset by labour efficiencies and lower marketing costs; FY23 EBITDA is in line with consensus market expectations (£8.9m). Arguably more importantly, net debt is also on track to reach market expectations (£17.5m) with year-end inventory levels expected to be significantly lower than FY22 (£45m). Our full year forecasts remain unchanged. Valuation remains wanting, unchanged TP 404p In our view, this update represents the return to form of Gear4music, with management demonstrating its ability to manage the mix of growth, margins and cash flow within a challenging trading environment. Well documented pressures on discretionary spend have slowed the UK top line; however, this has been offset by sharper pricing and adjusting marketing investment, whilst the EU continues to deliver good growth. The medium to long term expansion opportunity remains significant and we see potential for a sizable re-rating as sentiment towards the sector and stock improves. Our DCF-driven 404p target price remains unchanged and we note that, at the current price, the stock trades at a highly undemanding FY23E 5.5x EBITDA, 0.3x Sales.
G4M’s interim results reflected the previously disclosed headline performance featured in last month’s AGM trading update. The improved H2 trading momentum highlighted in the AGM statement has pleasingly continued into November, with the company reiterating confidence that the full-year FY23E outturn will be in line with consensus market expectations. Future platform developments will focus not only on enhancements to customer service and experience, but also on evolution of the platform to support multiple channels and verticals between suppliers and customers.
Today’s in-line results confirm a material uplift in European conversion rates, driven by its in-territory DCs and improved customer proposition. It delivered a number of key web projects in H1, and is on track to deploy other growth-oriented initiatives over the next 6-12 months. With trading momentum having improved ahead of peak, and stock/net debt now reducing, this update has the potential to support some re-rating from just 3x Mar’24 EV/EBITDA.
G4M reported H1 sales growth of 2% to 30 September, despite the trading challenges laid out in its September AGM trading update. The star of the show was Europe and Rest of the World, which delivered a sales uplift of 10%, reflecting the benefits of the additional Irish and Spanish hubs opened last year. The improved period-end trading momentum has continued into early October. Together with a return to a more normalised seasonal trading pattern, a number of website upgrades to be implemented in H2 and further productivity enhancement measures, the FY23E outlook remains in line with market consensus expectations following the September update.
Today’s update is in line with expectations that were reset in early Sept due to the cost of living uncertainties and weak trading over the hot summer months. We take encouragement from improved momentum in late Sept and Oct to date. It is on track to deploy several new growth initiatives in H2, as well as further productivity enhancements. Ahead of peak, G4M’s expanded infrastructure is performing well and it has strong inventory levels. Net debt is expected to reduce by year end, and the group has options available to it to generate cash if requred.
Half Year Update Gear4music has delivered positive first half revenue growth of 2% to £66.3m (1H-22: £64.7m) and net cash generation of £2.4m. Operating within a challenging consumer environment, the more mature UK division was down 3%; however, the new distribution hubs in Republic of Ireland and Spain have contributed to growth of 10% in EU & RoW. Gross profit was £17.4m (1H-22: £18.1m) with gross margin down 170 basis points to 26.3%, which we believe primarily reflects promotional activity in Q1. No Change to FY Outlook At the Group’s AGM update (9th September), we pulled back our full year estimates (see here) to reflect the deterioration in the trading environment, reflecting the macro volatility and heatwaves across Europe. In the face of increasing pressure on consumer spending, we are encouraged that trading momentum is said to have improved - despite the mourning period for Queen Elizabeth II in the UK - and that the Group is on track to meet expectations. With inventories already secured heading into peak trading, we believe the business is well positioned to generate additional cash in H2, providing further comfort around the balance sheet; the Group has a £35m debt facility vs current net debt of £21.8m. Sustainable Long-Term Growth Whilst mindful of headwinds facing the retail sector, we believe that the Group is well positioned to manage the volatile trading environment as an experienced operator with a differentiated model and a well-invested platform. The long-term expansion opportunity in Europe (a $7bn market) and new AV offering support its long term growth ambitions and the potential to restore EBITDA margin to double digit levels. Our DCF-driven target price 404p implies upside of c.272%. Buy reiterated.
Gear4music’s AGM trading update has reported sales growth in Q1 against tough comparatives. Trading over July and August was, however, impacted by the combination of extremely hot weather and the cost of living crisis, which has dampened discretionary consumer spending. While sales growth has picked up in September, the company believes it prudent to rein back full-year expectations given the prevailing market conditions. G4M is pointing to FY23E revenue of c.£155m with EBITDA of £9m.
A difficult summer, a difficult winter ahead G4M had a solid enough 1Q but July and August were below expectations; with cost headwinds ahead and the consumer probably not to be relied upon management is shifting guidance. We take our FY23E number from £12m to £9m and make similar adjustments to outer years. G4M remains a decent business but it is hard to be bullish on the shares with such clouds around and such limited PBT. We reduce our target price from 330p to 100p. Hold. Jonathan.Pritchard@peelhunt.com, John.Stevenson@peelhunt.com, Ruben.Pathmanathan@peelhunt.com
In its scheduled update, G4M reports growth in Q1 then weakness in Jul/Aug, albeit sales still accelerated in Europe. We believe the heatwave across its markets is a key factor and sales have improved in early Sept. Management can’t be certain planned growth materialises, though, given the uncertainties and spending squeeze, and is guiding Mar’23 EBITDA down £3m (-31%). Pending more info, we reduce Mar’24 EBITDA too (-17%). Markets were discounting bad news though and, post revision, it’s on only 6x EV/EBITDA – the basis for our new 220p 12m target.
AGM update comes at an inauspicious moment. Summer has been a challenging trading period for the sector, with the well-documented cost of living squeeze and unusually hot weather across Europe. The UK business is lapping relatively tough comparative performance, whereas the European operation has performed better following the opening of new distribution hubs in Republic of Ireland and Spain. Overall uncertainty in the consumer outlook sees management revise down FY revenue guidance to £155m (vs our previous £166.1m) with EBITDA of £9m (we had £11.6m). Still upbeat on prospects. The aforementioned macroeconomic challenges have combined with a sharp pull back in ecommerce spend – since Nov-21 UK internet share of total retail has declined from 32% to 25%. Nevertheless, management still anticipates reporting FY revenue growth of c5% with the European business continuing to take shape and the launch of AV.com making ‘good progress’. Overall, this remains a nascent business with market share of 9% in the UK and 2% in Europe, plus the adjacent multi-billion audio-visual market is now opening up, giving scope for significant long term growth. Downgrade priced in, we believe. The stock is down >80% YTD as fears for the consumer sector, particularly ecommerce, have ramped up. The operational gearing impact means this 25% downgrade to our FY23E EBITDA estimate sees Adjusted EPS decrease by 81%. However, as a well-established platform with a sizeable growth opportunity, we do not consider short term earnings metrics an appropriate valuation methodology; our DCF-driven target price reduces 21% to 404p.
G4M delivered FY22 results slightly ahead of guidance in the April post-close trading update, with EBITDA some £0.2m better at £11.2m. FY22 results were down on the exceptional FY21 but show strong progress over FY20, better reflecting the underlying growth trajectory. In light of recent acquisitions, planned enhancements and service additions to its proprietary trading platform, and its prescient investment in inventory ahead of inflationary pressures, G4M’s business model is set fair to deliver further progress over the longer term, despite shorter-term macroeconomic risks.
Results met previously downgraded expectations. Despite the challenges, including disruption from Brexit and weak performance in Europe (c45% of sales), profitability remains well above pre-covid levels (6% EBITDA margin) and it has a strong pipeline of exciting growth initiatives landing this year. So, although downgrades have disappointed and triggered a de-rating, this is far from the end of the story. On good execution these initiatives will bolster G4M’s long term potential and open up a pathway to £400m revenue (Mar23E £166m). This is GA(V)RP.
Results slightly ahead. For the year to 31st March Revenue declined 6% to £147.6m, with EBITDA -43% to £11.2m slightly ahead of our £11.0m forecast. Balance sheet remains solid. The net cash balance of £2.7m swung to a net debt position of £24.2m. This includes >£10m acquisitions plus a net working capital outflow of >£16m. Year-end inventories are up 60% with management investing in order to scale up the distribution hubs and offset the supply chain disruption that has been witnessed throughout the sector. The Group secured a £35m 3-year RCF with HSBC in April 2021 in order to execute this strategy, and we anticipate a c.£5m net unwind of working capital this year with >£6m positive net cash flow. Growth drivers vs challenging backdrop. Within the UK, the ecommerce share of total retail has been in decline as COVID pandemic restrictions have been lifted. This has been exacerbated by the worsening macroeconomic environment. However, Gear4music has a number of drivers for growth, with a nascent European business, its new audio-visual specialist site (av.com) and a pre-owned offering that is expected to launch towards the end of the calendar year. Refreshed target price 511p, retain BUY recommendation. We update our DCF, which incorporates a WACC of 8.5%. With a well-invested platform, differentiated model and significant long term growth potential we reiterate our BUY stance.
G4M has released its FY22 full-year trading update. Widely reported macroeconomic factors impacting consumer confidence have seen weakerthan-expected sales in February and March. While gross margin has remained strong, this has resulted in lower sales and EBITDA relative to consensus expectations. With overhead cost pressure compounding weaker consumer confidence, especially in H1 FY23E, we believe accordingly that it is prudent to revise outer year forecasts, summarised in the table below and detailed within this note. Strong stock levels will support G4M’s distribution capability, particularly in the new European distribution centres.
Feeling the same pain Cost-led downgrades are not uncommon in the retail sector currently (we’ve had two other ones today) and G4M has succumbed, too. The numbers look grim on the very bottom line (law of small numbers), but the market’s harsh stance is presumably due to the fact that the medium-term growth profile here now looks less attractive. The core story is unchanged, but it will take a while for EPS progress to re-emerge and for profits to overtake the FY21 high-water mark. We are not especially inclined to want to get involved with the shares, and now only the very best online plays trade at big premia. Jonathan.Pritchard@peelhunt.com, John.Stevenson@peelhunt.com
A solid Q4 delivered our expectations for full year gross profit, with EU sales performance improving. However, UK conditions softened slightly in Feb/Mar and, alongside cost pressures/ inflation, FY profits are £0.9m shy of expectations. Recognising stronger headwinds since last appraising forecasts, management has moderated outer year growth expectations too. These downgrades will likely disappoint, albeit the strategy is working and there is confidence in the pipeline of growth initiatives, notably from H2 onwards as they begin to accumulate.
Year-end update broadly in line. The Group has reported full year revenue of £147.6m, down 6% year-on-year, with EBITDA of £11.0m, 8% below our forecast (£12.0m). The gross margin remained strong at 27.8% with the cause of the shortfall being a weaker trading performance in February and March. Subdued consumer environment clouds the outlook. In the year to March 2022A, UK sales increased 5% whilst EU and RoW fell 18%, reflecting Brexit-related supply chain issues, as previously flagged. We understand that the new distribution centres have resulted in a marked improvement in EU trading, however, since the January update the volatile macroeconomic environment has seen trading conditions soften, particularly in the UK. Changes to forecasts. We revise down our assumptions for growth in both the UK and EU & RoW regions, whilst also incorporating a higher level of operating costs to reflect the well-reported inflation across labour, utilities, etc. The result is a marked downgrade to our earnings estimates (FY22E/FY23E/ FY24E: -13%/-52%/-47%). Management has also indicated that it has invested significantly in stock to support the support the scaling up of its UK hubs which, added to £11m+ spend on acquisitions, has seen a significant increase in net debt. We are not overly concerned by the increase given a) that our forecast had not incorporated c£5m of M&A which had previously yet to complete, and b) the Group’s track record of building inventory levels to support growth aspirations. A summary of forecast changes is shown on page 2. DCF-driven target price reduced to 602p; remains a BUY. The sector has already been hit hard as consumer confidence deteriorated and valuation multiples are well below historic levels for ecommerce stocks. With a sizeable long-term growth opportunity – c£5bn TAM – our positive view of the business is undiminished.
Q3 in line Total Q3 revenue of £47.2m was down 10% year-on-year, with UK up +13% and EU & RoW down -27%. Performance reflects a tough comparative (+30%), particularly for Europe & RoW (+51%), which was compounded by cross-border distribution issues in Europe as flagged in November’s update. We are encouraged that the more mature UK business continues to deliver strong growth, and note that the Group continues to track well above historic levels with Q3 revenue +17% ahead on a two-year basis. Furthermore, gross margin remains robust at 28.4%, down 150 basis points year-on-year but up 240 basis points on the two-year comparative. Positive outlook With the Group’s new European distribution centres in Spain and the Republic of Ireland said to be scaling up well, management is confident of regaining positive momentum in its non-UK operations. The Group’s expansion into the Audio Visual market is now underway following the recent launch of AV.com, which offers a sizeable additional growth opportunity, and a strong pipeline of new products, system updates and website features further underpins a positive outlook. Forecasts and target price unchanged, reiterate BUY stance Gear4music is a well-invested growth business with a proven and profitable business model. We are encouraged that the Group continues to take share in the UK and see potential for its differentiated offering to deliver long term expansion internationally and within the newly entered AV market. Our forecasts and DCF-driven target price of 896p remain unchanged. BUY.
G4M’s Q3 trading update showed a continuation of the trends seen in H1, with a robust domestic market performance offset by ongoing short-term post-Brexit challenges in Europe. The latter are being addressed through scaling up the new distribution centres in Spain and the Republic of Ireland, with European revenues set to regain momentum in FY23E. With ninemonth sales down c.9% against last year’s exceptional performance, G4M’s FY22E EBITDA remains in line with consensus expectations of £12.0m.
Financial performance during the peak seasonal trading period was in line with expectations, indicating good progress vs FY20 albeit down YoY as forecast. This and continued navigation/ mitigation of well-documented headwinds is reassuring. Crucially, EU DCs are scaling up well and momentum in Europe will soon be restored. Including AV, which launched last week, the group has a raft of incremental growth initiatives, making G4M a key pick for 2022.
A little off key 1H was as pre-announced but current trading has not sparkled in Europe and we must pare our expectations. It is taking longer and costing more to move product out of the UK and the European DCs are not up to scale yet, so the proposition has weakened and non-UK sales have been below hopes. At home, business is good and the AV deal looks a positive one but it is unlikely the shares are going to find much poise given the downgrades. All is far from lost but for now we move our recommendation back to Hold with a TP of 600p, which is an early 20s PE. A quick European sales bounce back is needed. Jonathan.Pritchard@peelhunt.com, John.Stevenson@peelhunt.com
Half year performance in line. Against challenging comparatives, we consider a flat UK performance (vs 1H-21’s +31%) to be a strong result. In Europe against the +48% comparative period, and with Brexit-related challenges previously flagged, sales fell 16%. Gross margins were maintained at 28.0%, down 60bps. EBITDA of £4.8m (vs 1H-21: £8.5m) was in line with expectations and we note it remained significantly above the two-year comparative period (1H-20: £2.0m). Downgrade to forecasts. The Group has previously outlined plans to strengthen its distribution into European markets with the opening of hubs in Republic of Ireland and Spain. However, whilst now operational, these additions have not yet been scaled up to the point required to offset the challenges presented by Brexit, with a significant proportion of orders still being fulfilled from the UK. Accordingly, management has reduced guidance for FY22 EBITDA to ‘no less than £12.0m’ (vs our previous forecast of £13.9m). Outlook remains positive. The pandemic had a significantly positive impact on the Group and, whilst this update is somewhat sobering, we highlight that guidance for FY22 remains well above pre-pandemic levels. Furthermore, the more mature UK divisional performance remains robust, indicating that the business model is very much intact and that the delays to scaling up the European hubs should prove a temporary setback within the context of significant long term growth potential. Reduce target price, maintain BUY recommendation. Our DCF-driven target price reduces to 896p (previously 1,218p), but we reiterate our positive stance.
G4M’s interim results were in line with Board expectations, reflecting the previously disclosed sales and gross margin performance, together with some operational deleverage against last year’s exceptional H1 performance. The group reported H1 EBITDA of £4.8m, compared with £8.5m last year, from turnover 8% lower and resilient underlying product margins down just 30bps. While the H1 results were in line with management expectations, Q3 trading in Europe has to date been slower than expected. The Board has therefore prudently reined back expectations towards previous levels, guiding to FY22E EBITDA of not less than £12m.
G4M’s update contains a mix of bad and good news. Results confirm a large proportion of gross margin/marketing efficiency has been retained, and UK trading is positive. However, Brexit headwinds are still restricting orders in Europe. Taking a prudent approach leads to 2/3rds of the last upgrade unwinding. The in-Europe solution to EU fulfilment is in place now, though, and scaling up rapidly, so these cuts might prove excessive. AV is not yet factored in either. With confidence in the growth runway, this should just be a bump in the road.
Half Year Trading Update Gear4music has issued a first half update indicating the Group is on track to meet full year expectations. Against challenging comparatives (sales up 42% last year), revenue of £64.7m, down 8% year-on-year, was a highly respectable performance; we note revenues remain up 31% on a 2-year basis. We are also encouraged that the gross margin of 28.0%, whilst down 60 bps year-on-year, remains well above the long-term average of c26%. Overall, we consider this a positive update with management reiterating it is on track to meet full year expectations. European Challenges Addressed Within the geographic mix, UK revenue was robust, flat year-on-year at £36.7m, despite lapping growth of 48% last year. European & RoW sales were down 16% to £28.0m with the complexities of cross-border shipping associated with Brexit hitting growth against the challenging comparative performance (+37%). As previously communicated, management has acted quickly, opening new distribution centres in the Republic of Ireland and Spain that will increase capacity and strengthen the delivery proposition on the continent. Forecasts and PT unchanged (1,218p), reiterate BUY With a number of retailers cautioning against the impact of supply chain issues, we are encouraged that the Group has been able to significantly increase its on-hand stock to >£30m (vs Sep-20 £23m) as we approach the Christmas trading peak. With the additional capacity in Europe and the addition of AV Distribution (due to complete in December), there are a number of additional growth drivers coming into play as the comparatives ease slightly (H2 growth +23% last year). Operating in fragmented large end markets, with its well-invested platform and unique service capabilities, we remain positive on the prospects for the Group. We reiterate our BUY recommendation and DCF-driven target price of 1,218p.
G4M has delivered an H1 trading update in line with internal expectations against the very strong H1 trading performance last year and is on track to meet full-year consensus market expectations. UK sales performance was the stand-out feature, coming in flat on last year. Europe’s performance was hindered by post-Brexit challenges, down 16% on last year, though up 14% on a two-year view. Group sales are down 8% in aggregate, but up 31% on a two-year view. Gross margin has held up well, being down 60bps on last year, but strongly ahead of two years ago (+280bps) and historical levels. G4M is well positioned from a supply chain perspective, with good levels of on hand stock going into its peak trading period.
H1 trading was slightly ahead of expectations from a sales and margin perspective, with UK sales positive in Q2 after annualising very tough Q1 comps. Despite exceptional comps, a good proportion of the gross margin uplift has also been retained. G4M continues to minimise the impact of various global supply chain headwinds. and has good visibility of stock/availability for peak. It is therefore confident of hitting full year expectations. Recent de-rating looks unjustified, particularly given a positive growth outlook as incremental growth drivers kick in.
Trading In Line YTD Having previously upgraded guidance in June, overall trading to date is said to be in line with expectations with a return to growth in the UK offset by slowing European revenues. The well-documented issue of post-Brexit cross border shipping is currently effecting the Group’s delivery proposition, however, this is expected to be alleviated in H2 with the opening of two new European distribution centres, as previously announced. Strategic Acquisition Provides Potentially Significant Growth Driver Contracts have been exchanged for AV Distribution Ltd, a Lancashire-based direct to consumer audio visual business. Combined with the purchase of a new domain name - AV.com – the aggregate cash consideration totals £9.2m, representing an EV/Sales multiple 1.1x, Adjusted EBITDA 7.1x, and includes £2.5m of inventory plus a freehold warehouse property valued at £1.3m. This acquisition provides the Group with a growth opportunity in a category of which management has some experience, but currently only a minor share of a total UK market c£400m. We believe that combining the focused proposition of an AV specialist with Gear4music’s ecommerce platform, experience of own-brand sourcing, marketing capabilities and access to European consumers could provide a significant additional driver of long term growth for the Group. Forecasts and Target Price Unchanged Trading as whole is in line with expectations and therefore we maintain our existing forecasts. With the AV deal yet to complete we do not factor in any incremental earnings at this stage; however, we note that given the time required to re-platform and relaunch the business, the contribution in the current financial year is expected to be limited.
The group’s AGM trading update included news of a complementary acquisition in line with the group’s stated growth strategy. It is to acquire the online retailer of audio-visual (AV) equipment, AV Distribution Ltd, which trades primarily as AV Online, together with a separate acquisition of the AV.com domain name, for a combined consideration of £9.2m. The acquisition will increase G4M’s addressable market, benefit from the scalability of G4M’s proprietary platform, and should be earnings accretive from FY23E. Trading remains in line with Board expectations, including the welcome news of UK returning to growth in July and August
The AGM update reveals a bounce back to positive YoY growth in the UK, but a slower growth trajectory in Europe, given post-Brexit challenges. These are being addressed and new DCs in Eire/Spain are on track to launch shortly. G4M is on track to meet FY estimates despite well documented supply chain challenges. Momentum is expected to rebuild from Q4 onwards and today’s acquisition in the audio-visual space further bolsters growth prospects beyond FY22.
Gear4music (G4M) has delivered a superlative set of results against the extraordinary backdrop of the past year. Profit measures are up at all levels, with the company swinging from a net debt to a net cash position at the year end. G4M has also announced plans to open two new European distribution centres and the strategic acquisition of two music brands to support its own brand offer. With a new £35m revolving credit facility (RCF) agreed, G4M is well placed to develop new complementary initiatives and make further acquisitions to strengthen its long-term growth prospects.
A familiar tune G4M had pretty much pre-announced its Prelims, and indeed they showcased a very strong year (albeit Covid-19 tailwinds were strong). There is no doubt that market share was won and continues to be, but profit delivery last year was impressive. Looking ahead, there are no current trading numbers but confidence is clearly high and guidance is upgraded: we take EBITDA of roughly £12m for the next two years to £14m for FY 22E and £17m for FY23E. The market was probably expecting a big upgrade so the shares won’t run away, but this is a good company doing well and we stick with 1,000p as a TP. Jonathan.Pritchard@peelhunt.com, John.Stevenson@peelhunt.com
Strategic and operational initiatives have been transformational over the last 2 years. Including some challenges during the pandemic, G4M’s performance has far exceeded original expectations. EBITDA margin of almost 12% is potentially an indicator of things to come in the future. Trading so far in Q1 has exceeded expectations. With confidence in margin/efficiency retention growing, and a number of new growth initiatives in the pipeline, we have upgraded Mar’22 forecasts by almost 50% and introduced Mar’23/24 numbers. Our fair value estimate is 1275p with forecast risk to the upside, including from M&A.
Positive trading in Q4 leads to another 6% upgrade, with EBITDA margin over 11% for the year (pre-IFRS16). While early days, G4M is pleased with initial trading in Q1 FY22 too, against the toughest comparatives of the year (lock-down 1.0). The growth strategy now also has a number of new and incremental elements to it, including M&A, which look set to contribute positively within 12 months. Alongside growing confidence that the core margin and efficiency gains from 2020 can largely be retained, prospects look bright. Depending on where Mar’22 forecasts land, fair value is estimated to be in the range 1100-1400p.
…as strong Q4 sees a further EBITDA upgrade
Gear4music has continued to perform strongly since its Q3 update. As a result it has increased Mar’21 EBITDA guidance by £1.7m, equating to a c11% EBITDA margin and a 15% EPS upgrade. Today’s news not only highlights the continuing improvements in gross margin, but also the effectiveness of its cross border logistics solutions post-Brexit. This has allowed it to gain market share and maintain a clear customer proposition in contrast to others in its sector. Given its growing competitive advantages and discount relative to peers, valuation looks undemanding in our view, on <1x EV/sales or 9x Mar21 EV/EBITDA.
Further to the upgrade delivered on the back of its impressive Q3 peak trading period, G4M has continued to perform strongly in Q4, resulting in another upgrade. Management now anticipates that EBITDA for FY21E will be not less than £18.2m, compared with our previous forecast of £16.6m. We have subsequently raised our FY21E EBITDA forecast by £1.7m (+10%) to £18.3m. G4M will make a more detailed announcement on FY21E’s trading performance no later than 23 April.
A tuneful bridge G4M has enjoyed the first six weeks of 2021, and with forecasts beforehand being on the beatable side, management is obliged to update the market, as the strong sales growth is dropping nicely through the P&L. We raise FY21E 9%, but still make no change to next year, as management is uncertain as to how the industry will look. We consider that fair enough, as there is plenty of uncertainty around, but we would be disappointed if G4M made only two thirds of FY21E EBITDA in FY22E. It is an improved and improving business, and the industry should evolve in its favour. 1x EV/sales should be a mere starting point. Buy. Jonathan.Pritchard@peelhunt.com, John.Stevenson@peelhunt.com
We were bullish about the ongoing effects of strategic/operational initiatives at G4M, seeing forecast upside risk. It has not disappointed. Q3 sales and margin outperformance drive a 30% upgrade, and a shift into net cash. Extensive planning and systems/delivery changes have helped it after Brexit too, with trading stronger than expected so far in Jan. Valuation looks undemanding given upgrade momentum and the discount to lower margin peers.
Jump to the Beat Even if lockdowns 2 and 3 helped, sales and profit delivery are impressive and smash expectations. In Q3, group sales were up by 30%: any additional costs were well mitigated, operational gearing emerging such that there’s a 20% upgrade to EBITDA (outer years’ forecasts conservatively held). G4M is making the most of a helpful situation with others’ stores closed and its leadership online undisputed. Europe is clearly gaining pace (sales up 50% in Q3) and we see little reason for the underlying positive direction of travel to change. We raise the TP to 1000p from 825p to reflect an EV/sales in line with the online average. Jonathan.Pritchard@peelhunt.com, John.Stevenson@peelhunt.com
…..drive further forecast upgrade
G4M has reported a substantial uplift in profitability, notably EBITDA margin >11% from <3%. While conditions in Q1 contributed through abnormally rich margin and marketing efficiency, results underline what G4M is capable of on higher volumes. We prudently upgrade by another 15% but note that it is well prepared for Brexit, has a continuing focus on higher margin products, is taking market share through digital innovation, and has ongoing software development at the core of its growth strategy. Valuation is extremely undemanding.
Gear4music (G4M) has delivered an outstanding set of interim results figures, based on its position as a beneficiary from the Covid restrictions across Europe. The previously disclosed 42% sales increase included new customer numbers jumping 52% over last year to just over 400,000, who will bring benefits over the medium- and longer-term. Performance increases and profit margins were leveraged going down the profit & loss account, with PBT of £4.9m delivered against last year’s small loss of £0.1m. With November seeing a continuation of strong trading patterns, G4M expects FY21E results to be ahead of recently upgraded market forecasts. We have consequently increased our EBITDA forecast by £1.1m (+9%) to £13.5m.
G4M’s H1 trading update confirms the continued strength of the top line sales growth already disclosed in its Q1 sales update. H1 sales have risen by an impressive 42% to £70.2m, complemented by gross margin expansion of 330bps to 28.5%, reflecting G4M’s focus on profitable sales growth. This translates to gross profit growth of £7.5m (+60%) compared with last year and will deliver interim financial results materially higher than last year. While sales momentum has continued into October, management remains mindful of the ongoing uncertainties around Covid-19 and Brexit heading into the peak trading period. With market estimates already raised on the Q1 update, this prudent caution tempers our full year PBT upgrade to 13%.
Gear4music has issued a trading update for the 6 months to Sep’20, highlighting strong top line growth of 42% (N1e: 35%), which can be attributed to the CV19 lockdown and channel shift. Alongside this, the group reported a gross margin improvement of 330bps (N1e: 200bps), reflecting management’s successfully executed operational strategy outlined just over a year ago. On the back of the announcement we have upgraded our FY21 gross margin by 110bps, which leads to a pre-IFRS 16 EBITDA upgrade of 16%. While management is cautious on the revenue outlook, given the near term uncertainty, our forecasts reflect the operational outperformance. Valuation is undemanding, and intrinsic value using its peer group average rating is 1150p.
Gear4music continued its recent run of positive news announcements yesterday with an upbeat AGM trading statement. Growth, following an exceptional first quarter in FY2021 (April to June), remained brisk in July and August. Moreover, the company’s strong sales momentum is more than matched by improvements on costs and margins.
Gear4music is the leading UK online retailer of musical instruments and music equipment and has established operating bases in Sweden and Germany to spearhead its expansion into mainland Europe. It operates a low-cost model, with further efficiency gains targeted, and is profitable from the first customer transaction, achieving a 250% gross margin return on its marketing investment in new customer acquisition.
Gear4music reports that trading has remained strong in the 1st 2 months of Q2. Back in July it said it had achieved 68% sales growth in Q1 (to 30 June) along with improved gross margins and cost efficiency, notably in marketing. Today’s update says G4M is continuing to generate improved margins alongside proportionally lower marketing costs YoY, no doubt with additional operating leverage in other cost lines too. As a result, FY21 results “will be at least in line with recently upgraded expectations”. We make no changes today, pending an H1 trading update on 22 Oct, but highlight that forecast and valuation risk is very much to the upside. Time to take a look for those that haven’t yet.
Gear4music has delivered very strong growth in Q1, both in the UK (+80%) and in European/overseas markets (+55%). This has been achieved with lower marketing spend than would typically be expected AND higher gross margin, both of which were key focal points of management’s improved strategic/operational plan a year ago. Capacity solutions at its DCs and good supply/stock availability have also been instrumental in delivering this exceptional performance in lock-down. At this early point in the year, and with many uncertainties, we have only amended gross margin and marketing assumptions (not sales), albeit this leads to a 19% EPS upgrade this year, still with risk to the upside if sales momentum continues. Valuation is extremely undemanding, and intrinsic value using its peer average rating is 875p.
Gear4music, which reported positively on FY2020 profits in its recent 23rd June 2020 results announcement, released further good news today. The company already stated that FY2021 had started on an exceptionally strong note for sales revenue. But profitability – an upgraded priority in the past 18 months – now looks to be ahead of expectations. We raise our forecasts on this report.
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
G4M SNX HVO VRS BPM 3N9A EMH LP0 HXP0 8D9
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.
G4M AVCT NCC ITM GFIN HUD SORT GHE E3C 483
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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Gear4music matched market expectations in FY2019 after encountering well reported turbulence in the second half of its financial year. A combination of greater focus on customer satisfaction and strong financial resources augurs well for an improved profit performance and associated shareholder value creation in FY2020. The new fiscal year started well.
The gross margin & capacity setbacks that impacted FY19 are well documented. In our opinion, these are transient in nature and growth related, rather than structural. They are already being addressed with a raft of initiatives to improve gross margins and operating efficiency. While early in the year, positive trends are reportedly being seen as a result, and the tone of the outlook statement is confident. Our forecasts assume only modest EBITDA margin improvement, so look well underpinned. Given the shares trade at a c45% discount to, in our view, lesser peers, this update should be well received and act as a catalyst for re-rating. Our 12m fair value estimate is 300p.
G4M is a fast growing online retailer with significant future expansion potential in highly fragmented markets. Supported by its own proprietary web platform it has become an agile, low cost, operator with increasing competitive advantage. UK market share gains have got bigger in each of the last 3 years, and growth is accelerating in European markets (c6x larger). Margin and capacity set-backs in H2 are being addressed and increasing EBITDA margin is a management priority. Even assuming only modest recovery our 12-month fair value estimate is 300p, representing 60% upside after recent weakness. This rises to 230% (620p) in our bull case scenario. This represents a compelling opportunity.
Gear4music continues to deliver sales in line with market expectations and guides towards further expansion in FY2020. However, some profitability issues (flagged in its 5th January 2019 trading statement) remain in place. Near term, investor interest in Gear4music should focus on its brisk sales growth.
Gear4music’s recent FY2019 profit warning prompted a stark share price reaction. However, there was no let-up in sales growth. As intended, Christmas market share improved at Gear4music and top-line expectations remain intact. Moreover, gross margins should end the year making progress on FY2018. There are good reasons to be positive, which now include valuation.
Gear4music’s interim results were released this morning and reconfirmed both underlying sales growth for the business and a view that full year profits will meet expectations. The company’s second half includes the all-important Christmas period. Moreover, international sales appear set to nudge ahead of UK in the six months. Clearly, sales trends remain strongly positive, which should benefit both future profit growth and valuation.
Gear4music reported strong first half sales growth in its trading statement today as both UK and Europe made brisk gains and the combined H1 figure beat current expectations. A higher full year number than originally envisaged seems likely, although the company did encounter some margin pressure. Overall, Gear4music’s growth stock credentials look intact.
Gear4music plc, the largest UK based retailer of musical instruments and music equipment, issued a brief update this morning ahead of its AGM, which is scheduled today for 3pm. Despite what is considered to be a competitive retail environment, revenue growth continues to be strong. Moreover, the projects to relocate the Swedish distribution centre and upgrade UK distribution are on track. The company reaffirmed guidance.
Gear4music - Britain’s largest online musical instrument retailer - is well placed to continue generating rapid revenue growth. UK online sales appear positioned to gain further share of a musical instrument market which enjoys some steady growth. Moreover, the AIM-listed company is still in a relatively early stage of rapid Continental European expansion. With a clear cut growth strategy forged by an experienced management team, strong brand credentials and positive scores for its commercial KPIs, investment prospects look bright.
Edison Investment Research is terminating coverage on Gear4music Holdings (G4M). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant.
Gear4music Holdings (G4M) finished the year in robust style, with 43% revenue growth. While marginally below our forecast, this represents good momentum going into FY19, where we only forecast 27%. While continued investment in scale means costs remain at planned levels, resulting in a pause in FY18 earnings growth, prospects for further market share gains remain bright and we see the current share price as below fair value.
Gear4music Flash : Christmas No.1
Gear4music (G4M) has fulfilled the strong expectations of its four-month Christmas trading period. Revenue growth of 42% is consistent with H1 and is in line with expectations, both in the UK and faster growing international markets. This means that the online model continues to take share, achieving growth far ahead of consumer fundamentals and building on its market-leading position. We retain our forecast and reiterate our valuation stance, which sees upside based on the rate of development of international markets.
H1FY18 EBITDA of £717k is ahead of our forecasted £571k. Whilst the quantum of the profit ‘beat’ in G4m’s seasonally less significant trading half is immaterial per se, the significance of the positive surprise should be well received by the stockmarket as; (1) it confirms that G4m has demonstrated the good discipline of successfully navigating a period of elevated investment into its customer proposition and supporting infrastructure, whilst simultaneously delivering profitability and continued strong revenue growth above consensus expectations; and (2) management’s credibility around profit guidance continues to strengthen, a highly prized characteristic in a high growth company making the considered significant investments required to secure its increasing market presence at scale. KPIs remain impressive, showing continued progress. Operational execution is strong, with numerous ongoing initiatives (e.g. the launch of a US$ website) to support future profitable growth. We note management’s outlook commentary regarding “continuing momentum”, and confidence around unchanged guidance for the FY18 out-turn, suggesting a good start to the key-for-annual-profits H2 period. Reiterate BUY and 920p TP, reflecting H1’s operational, financial and strategic progress, with much more to come.
While revenue and customer KPIs continue to grow robustly, Gear4music (G4M) is preparing the next stage of expansion. The first half saw the start of the planned investment associated with the May placing, the new head office structure, and the move to positive contribution in the two European hubs. It ends with the launch of the US$ website opening a new front in a larger market, and the company strongly positioned for the key pre-Christmas season.
Today’s encouraging H1FY18 pre-close trading update leads us to believe that G4m has profitably navigated a period of elevated investment into its proposition and infrastructure, whilst simultaneously delivering continued – and better than expected – strong sales growth in both the UK (+30%) and Internationally (+70%) for overall H1 sales growth of +44%, one of the highest levels of growth amongst our universe of UK-based structural growth retailers. Whilst we leave our FY18 profit forecasts unchanged for now, the combination of; (1) the recent sales growth trends (particularly in the last 6 weeks); (2) management commentary about continued market share gains; and (3) overall momentum in the business gives us comfort that G4m is well set up for the keyfor-profits H2 period. We reiterate our BUY and TP of 920p
Having cautioned on the H1 revenue split, Gear4music (G4M) has achieved close to our previous expectation, based on European outperformance. Strategic costs and the significance of H2 mean that we leave profit forecasts unchanged, though with added confidence. As our valuation is predicated on the speed of European share gains, this better than expected result appears positive.
Today’s in line AGM trading statement reassures that G4m continues to make progress on multiple levels. The statement is qualitative, but confident in tone in confirming that; (1) buoyant trading continues, (2) long-term strategic developments to make G4m a significantly larger, global company remain on track; and (3) FY18 will represent “another year of good progress”. To reflect management’s measured confidence and our increasing conviction that G4m has a big addressable market, a clear USP, and a scalable business model to capture the financial benefits of such a global opportunity, we raise our TP to 920p, and see ample scope for more increases as G4m demonstrates further evidence of operational, strategic and financial progress. Our previous TP of 700p has now been comprehensively surpassed, reflecting significant investor demand post the oversubscribed placing at 690p on May 19th raising £4.2m equity growth capital to accelerate the execution of the company’s strategy. We reiterate our BUY.
Gear4music (G4M) confirms that trading is on track for the first four months of FY18. The return to a more normal second half-weighted revenue split has already been flagged. Significant development of the offer and the platform is underway as the company focuses on the international opportunity. Given this focus, the market’s expectation of the time the company is likely to take to build European market share may be too cautious, which would imply upside for the share price.
Gear4music’s continued market share gains in the UK, and triple-digit growth in Europe, give line of sight to a significantly larger business with enhanced investment returns. Institutional investors have demonstrated their confidence in the company’s growth strategy with the recent placing, but that has not been sufficient to address a market that continues to focus on higher value based on increasing market share.
Gear4music (G4M) has excited the market with stellar growth since IPO, and has beaten our forecast once again with 272% EPS growth for FY17. Management is focusing on a strategy that could make G4M a significantly larger company, building on the international development of music as a leisure activity. The company is now investing in the infrastructure to make this possible, with two new centres in Europe and a new base in the UK.
FY17’s very strong results are well ahead of our expectations which had been primed to expect just a marginal profit “beat”, as flagged in the FY17 pre-close on March 3. Management commentary highlights that FY18 has started “with good momentum”. Trading updates are unlikely to disappoint and the medium term outlook is increasingly encouraging. The business is well invested for its current 1-2 year growth projections and is now laying down the strategic cost investment foundations in preparation for its 3-5 year plans, whilst the strength of operational KPIs supports another year of strong performance. To reflect our increasing confidence in the G4m’s long-term prospects, we reiterate our BUY, raising our TP to 700p.
Gear4music (G4M) has ended the year with 58% revenue growth, slightly ahead of expectations, and has also guided to profit performance marginally ahead. Driven by European sales growth, this shows continuing development of its international presence, as does the opening of (now) two distribution centres on the mainland. Sales growth is now building against strong growth last year, and the strategic argument for medium-term investment continues to strengthen.
Today’s FY17 year-end trading update delivers a marginal but nevertheless pleasing positive profit surprise relative to our PBT expectations which had been raised by 20% just less than 2 months ago. This new positive profit surprise is driven principally by strong cost control despite significant ongoing investment into G4M’s infrastructure ahead of future growth, whilst G4M’s sales continued their strong growth in both the UK and Europe/RoW in the seasonally quiet January and February. As flagged previously, the company’s ethos of investing in infrastructure ahead of future growth will be a key feature particularly in FY18 but also beyond. We note therefore that two such pivotal investments in FY17, namely the two local European logistics hubs in Sweden and Germany, are operational with early signs that G4M’s move to replicate its best-in-class delivery and services proposition to non-UK markets is already supporting top line growth internationally. We maintain our BUY
Gear4music’s (G4M) Christmas trading statement shows it continuing to take share in its niche markets to generate revenue growth far above the level of general consumer demand. We expect the company to over-achieve our margin expectation, and upgrade our FY17e earnings per share forecast by 20%, although we expect margins to normalise in FY18. While the share price has risen by a factor of four since we initiated in May 2016, it still stands at a discount to larger UK pure-play e-tail peers.
Today’s very strong trading statement shows continued excellent sales momentum (+55% for Sept-Dec) and a boosted gross margin, attesting to G4M’s delivery against its stated strategic objective to grow European market share and marginrich Own-label offering. This prompts us to raise our FY17 PBT estimates by +20% (following on from the +21% increase in October 2016). The company ethos of investing in infrastructure ahead of future growth leads us to believe that operational gearing will come through further as the international business grows over the medium-term. G4M’s unwavering investment philosophy is, in our view, absolutely the right one but it constrains the short-term profit upside potential, hence why, despite the continued strong sales growth momentum and gross margin stability envisaged in FY18 and FY19, we think it prudent for now not to change our FY18-FY19 PBT forecasts. To reflect our confidence in G4M’s future prospects we raise out TP to 600p (from 400p).
Excellent H1FY17 results with strong current trading. EBITDA rose materially to £1.4m (6.3% EBITDA margin vs 1.7% in H1FY16) reflecting operational leverage on £21.6m revenues, up 73%. We raise our FY17 PBT and FY18 PBT by 21% and 6% respectively to £2m and £2.9m. The strong momentum continues which, combined with the virtuous circle of strategic re-investment into the e-commerce platform, the product range, and new capability/capacity, points to further scope for our upgraded but still conservatively framed estimates to be surpassed. Our new TP of 400p (vs 200p) is based on a EV/sales of 1.4x, still well below the 2.4x average of the UK e-commerce peer group, given that G4M is starting to unequivocally display many of the characteristics of its peer group (e.g. 3 year FY16-FY19e sales CAGR of +40%, leader in its chosen niche due to an attractive consumer proposition and highly defensible business model, profitable, well-funded and cash-generative).
Gear4music’s extraordinary European sales boost following the Brexit vote risks masking the strong underlying development of its business. We see this continuing to deliver strong double-digit revenue growth, independent of likely weakening in the UK demand environment, and led by its strategic focus on European market share. The company plans to invest in expanding the management team and establishing distribution bases in Europe, strengthening its profile for the medium term. We are raising our forecasts and our updated valuation offers upside against the share price.
Today's H1FY17 pre-close statement shows that trading remains very strong. Total sales growth of +73% (comprising UK sales growth +44% and European sales growth +169%) is an acceleration vs. the +66% at the first four months stage, and considerably higher than the +37% that we forecast for the full year. The trading update impresses on three levels; (1) demonstration of G4M's ability to execute against its substantial sales growth opportunity, today increased to £100m+ of sales given commentary around capacity afforded by adding two distribution centres in Europe to the existing UK one; (2) continued delivery against G4M’s promises, notably confirmation of the commencement of G4M’s first European distribution hub by the end of 2016); and (3) reassuring management commentary that G4M’s overall profitability in this interim period will be ahead of expectations, thereby adding significant comfort around our unchanged for now FY17 forecasts. We reiterate our BUY and TP of 200p.
Today's AGM trading update is very strong. It demonstrates again G4M's ability to deliver against its continued substantial sales growth opportunity, driven by the combination of (1) G4M's increasingly potent overall customer proposition (reflecting, for example, management's particular focus in FY17 on continuously improving the customer experience), and (2) its constantly evolving supporting operating model (best illustrated by G4M's stated commitment today to have its initial European distribution centre operational by Christmas 2016, such is the size of G4M's European sales opportunity). Reassuring commentary is made about the evolution of gross margin and administrative costs, thereby firmly underpinning our FY17 forecasts. We reiterate our BUY and TP of 200p.
Revenue in the first four months grew significantly faster than we forecast for the full year, particularly in Europe, and the additional post-referendum boost to sales was considerable. That is important in view of the group’s stated strategic objective to grow European share. It is too early for us to revisit forecasts, but these strong results provide added assurance and de-risk the remaining eight months. We maintain our 186p valuation.
European sales, already strong, have become even more competitive following the UK’s Brexit vote, with like-for-like growth increasing from 120% in the week leading up to the vote to 191% in the week to 3 July. This creates a tailwind for the company’s strategic focus on international expansion in the current year. There will be a more detailed update at the AGM on 29 July.
Accompanying today’s RNS announcing the publication of FY16’s R&A and Notice of the AGM on July 29th , G4M has issued a reassuring trading update for its fast-growing European business (representing 27% of G4M’s FY16’s total revenues). Europe continues to enjoy a very rapid, broadly-based expansion with +191% increase in European LFL sales in the first full week following the referendum. This is (1) higher than the +120% growth in the final full week before the referendum; (2) higher than the overall run-rate we understand was achieved in Q1 FY17, and (3) a notable sequential acceleration on the +79% growth achieved in H2 FY16. We maintain our Buy, particularly after G4M.L’s 15% fall since June 23, thereby representing a compelling buying opportunity.
Strong maiden FY16 results delivered on IPO commitments. Particularly pleasing was the financial performance, with adjusted EBITDA of £1.7m (vs PG £1.4m). All operating/financial KPIs are ahead and there remains much “catch-up” potential. “Strong sales momentum in both the UK and internationally” characterises FY17’s current trading. G4m has the financial strength (FY16 net cash £2.6m), motivation and capabilities to grasp the sizeable opportunity ahead. We increase FY17 and FY18 adj. EBITDA estimates by 4% and 3% with scope for upgrades, thereby leading to an increased TP of 200p based on the average of a range of methodologies.
Gear4music (G4M) is marching to the beat of the online opportunity in the niche area of musical instrument retailing. Traditional competition is fragmented and only partially online, so the market is wide open. With sales growth of 46% in FY16, G4M now has 3.5% of the UK market, and is focusing on the European market, which is six times larger. We think the company has scope for significant revenue growth and, assuming undemanding economies of scale at operating margin level, we value the shares at 186p based on peer comparison and DCF modelling.
Don’t ‘whisper’ it – Gear4music rocks up this morning with a sparkling maiden FY trading update. Remember Gear4Music issued a positive update for the Christmas period (6 January) – the momentum has clearly continued well into the New Year. Gear4music wrapped up the year beating our forecasts with the highlight very strong revenue growth – Group revenue £35.5m vs our £32.6m target. We expect profit and cash to also ‘beat’, although the detail on product mix will give the margin outturn; nonetheless we guestimate EBITDA c£1.5m. What will they do for an encore? For 2016E gear4music should benefit from: (i) a positive tailwind from its European sales traction, (ii) a growing customer population, (iii) competitive share gains, (iv) its new 24x7x365 service means that instant gratification is only a day away – (a boon for this e-comm), (v) also the beat was achieved without that new London showroom on the decks for 2016. Gear4music is evidently well managed, is making competitive gains, is best in niche, growing, cash generative with an increased user footfall: add in the EV/EBITDA of 9.9x and this is music to our ears. We reiterate our Buy at 180p target price.
Gear4Music rocks our boat this morning with an upbeat Christmas trading update. The strong sales momentum seen in H1 has continued and operational KPIs (like visitor traffic, conversion rates and mobile usage) continue to trend positively. With two trading months left in the FY Gear4Music surmises that FY trading is in line with expectations. For the record: Gear4Music is the largest UK based online retailer of musical instruments and music equipment and is an investment ‘play' on the £4.3bn European music equipment market. Gear4Music is one of the cheapest investment plays (EV/Sales 0.9x) in Ecommerce, a market which continues to enjoy secular growth. We retain our Buy.
We took a road trip up to see the gear4music last Thursday. The York corporate headquarter comes complete with a showroom, distribution centre, recording studio attached. As investors will appreciate following recent results there is lots of stock, the team has a nice sense of urgency. We like the showroom format with dedicated areas for the instruments and very knowledgeable staff. There is no new news on the London showroom, the team is still looking for a suitable site, and we think that central London is the most likely choice. All in all the company seems well placed for Black Friday and into the Christmas trading period, indeed we note some good deals on the UK website this morning. For the record: gear4music is one of the largest UK based online retailers of musical instruments and music equipment and is an investment ‘play' on the £4.3bn European music equipment market. While the H2 hurdle looks de-risked, remember our FY sales assumption is 34%, we have nonetheless elected to retain existing forecasts ahead of that critical Christmas period. We retain our Buy.
gear4music orchestrates a superb set of maiden interim results. While headlining with 43% revenue growth and improving conversion rates, the results also show that its consumers are increasingly international (Euro revenue +62% YOY), more mobile (+54% YOY) and that sales are accelerating sequentially post IPO (Q1 40% revenue growth, 45% in Q2). For the record: gear4music is one of the largest UK based online retailers of musical instruments and music equipment and is an investment ‘play' on the £4.3bn European music equipment market. While the H2 hurdle looks de-risked, remember our FY sales assumption is 34%, we have nonetheless elected to retain existing forecasts ahead of that critical Christmas period. Shares are trading on 1.0x EV/Sales – too cheap given comps on 2.9x and gear4music's superior growth and ability to execute on TAM. Get geared up and Buy.
Online musical instrument and equipment retailer Gear4music has delivered its first trading update – covering the six months to August – since its successful IPO in June. Strong sales growth in both the UK (+38%) and Europe (+60%) suggest that the company is on track to meet, and potentially beat, our full year forecasts. However, given the importance of the Xmas trading period, we leave our estimates unchanged for the time being. We continue to believe that the company is well-positioned to develop into a leading player on the European stage. We reiterate our Buy recommendation and 180p Target Price.
Gear4music is a leading retailer of musical instruments and equipment in the UK and European market. Management now plans an evolution from a largely domestic UK player to front man on the European stage. We think this is exactly the right time for investors to get involved. Much of the competitive risk has been removed, while an injection of growth capital should deliver a significant boost to scale and margins. This investment will impact near-term cash profits, but we think this is amply compensated for by the level of discount to online retailing peers that the current valuation implies. We initiate coverage with a Buy recommendation and 180p Target Price.
Gear4music is a leading retailer of musical instruments and equipment in the UK and European market. Management now plans an evolution from a largely domestic UK player to front man on the European stage. We think this is exactly the right time for investors to get involved. Much of the competitive risk has been removed, while an injection of growth capital should deliver a significant boost to scale and margins. This investment will impact near‐term cash profits, but we think this is amply compensated for by the level of discount to online retailing peers that the current valuation implies. We initiate coverage with a Buy recommendation and 180p Target Price.
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