Unscheduled update as it beats expectations for year ended March
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.
02 Apr 20
Success over peak delivers substantial uplift in profit margins
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
23 Jan 20
Good Rhythm – Headroom to Grow
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.
23 Jan 20
Small Cap Feast
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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23 Jan 20
Profitability Takes Centre Stage
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.
12 Nov 19
Strategic initiatives powering up the gross margin
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.
12 Nov 19
Strategic and operational initiatives materially enhance gross margin
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.
22 Oct 19
Moving to the rhythm
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.
22 Oct 19
Growing confidence in margin recovery + profitable long term growth
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
30 Aug 19
Small Cap Feast
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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30 Aug 19
Getting Satisfaction in 2020
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.
26 Jun 19
Early signs of margin rebuild are cause for optimism
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.
25 Jun 19
Recent weakness creates compelling entry point
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.
29 Apr 19
Sales growth steals show as margins slim
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.
02 Apr 19
Small Cap Feast
Techniplas –global producer and support services company providing highly engineered and technically complex components, making the supply chain to original equipment manufacturers more efficient. FYDec17 rev $515m. Loungers plc—the operator of 146 café/bar/restaurants across England and Wales under the Lounge and Cosy Club brands, announces its intention to seek admission on AIM, offer TBC
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02 Apr 19
Top line on song for further 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.
15 Jan 19
Interims justify FY2019 profit expectations
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.
16 Oct 18
Small Cap Feast
Kropz PLC—an emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa, a phosphate project in the Republic of Congo and exploration assets in Ghana. Looking to join AIM, offer TBC, market cap TBC. Due Late October. Azalea Energy—oil and gas production and development company based in Louisiana, United States. Net production of 13 MMcfe/D (2,200 boepd) and total 1P proved reserves of 91 Bcfe (15.1 mmboe), 2P reserves of 111 Bcfe (18.5 mmboe) raising up to $38m, expected mkt cap over $100m. Due 29 Oct Summerway Capital investing company established to acquire companies or businesses which the directors of the Company believe have the potential for strategic, operational and performance improvement so as to create shareholder value. Offer TBC, market cap TBC expected 19 October Admission is being sought as a result of the proposed RTO of Cambian Group plc following completion of the acquisition by CareTech a leading provider of specialist social care services, supporting adults and children with a wide range of complex needs. No raise, market cap TBC expected 19 October. Path Investments— First acquisition of a 50 per cent. participating interest in the producing Alfeld-Elze II gas field located 22 kilometres south of Hannover in Germany. Seeking £10m raise. Due late Oct Crossword Cybersecurity PLC* (NEX:CCS)—the technology commercialisation company focusing exclusively on the cyber security sector is exploring its options in relation to a potential move to the AIM market of the London Stock Exchange which, if it were to proceed, would likely take place over the next few months.
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16 Oct 18
Strong H1 Sales – Growth Outlook Upbeat
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.
07 Sep 18
Small Cap Breakfast
Green Man Gaming—pure play e-commerce and technology company in the digital video games industry. revenue CAGR growth of 26.7% in the last three years to £47.5m. Due late Sep. EBITDA Profitable. Offer TBA Crossword Cybersecurity PLC* (NEX:CCS)—the technology commercialisation company focusing exclusively on the cyber security sector is exploring its options in relation to a potential move to the AIM market of the London Stock Exchange which, if it were to proceed, would likely take place over the next few months. Path Investments (PATH) -RTO of a 50 per cent. participating interest in the producing Alfeld-Elze II gas field located 22 kilometres south of Hannover in Germany. Seeking £10m. Offer TBA. Due Mid September Kropz PLC-Intention to float by the emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa and exploration assets in West Africa
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07 Sep 18
AGM Update – Growth on Cue
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.
27 Jul 18
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.
29 May 18
Robust finish and forward momentum
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.
06 Mar 18
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.
05 Jan 18
Small Cap Breakfast
Cradle Arc—holding company of a group of companies focused on the exploration and development of precious and base metals projects in Africa. Offer raising £2.4m with market cap of £20.13m. Expected 10 Jan 2018 | Volex VLX.L—The global provider of cable assemblies is proposing to move from the main market to AIM on 19 January. £75m market cap. FYMar18E rev £241.5m and £7.19m PBT | OnTheMarket—Intention to float on AIM to raise c.£50m which will be used to fund the growth of the OnTheMarket.com portal, already the third biggest UK residential property portal provider. Expected valuation £200m to £250m.
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05 Jan 18
Ready to rock
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.
23 Oct 17
Europe starts to sing
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.
05 Sep 17
Focusing on the European opportunity
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.
28 Jul 17
Looking Forward on the markets H2 2017
The AIM market turned twenty-two in June and it is fair to say it has had its fair share of difficultiesH1 2017 saw a further net loss of constituents and we ask what will the rest of 2017 hold in store. Arguably the stability of the UK government, Brexit and the shift in global monetary policy will be the biggest themes for the remainder of the year.
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12 Jul 17
European horizons open up
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.
05 Jun 17
Two years' success and platform for expansion
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.
10 May 17
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.
03 Mar 17
Small Cap Breakfast
Venn Life Sciences*( VENN . L) | MediaZest* (MDZ.L) | Legendary Investments (LEG.L) | AFH Financial (AFH.L) | Intercede Group (IGP.L) | Gear4Music Holdings (G4M.L) | Trakm8 Holdings (TRAK.L) | Kodal Minerals (KOD.L) | Applied Graphene Materials (AGM.L) | Velocys (VLS.L)
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03 Mar 17
Small Cap 2017 - The only certainty is uncertainty
AIM will turn twenty-two this June and it is fair to say it has had its fair share of ups and downs, with 2016 being a case in point. We ask what will the rest of 2017 hold in store? Arguably the US dollar, Brexit, bonds, and banks will be the four big themes for the new year.
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18 Jan 17
N+1 Singer - Small-cap quantitative research - Momentum screen refresh + 10 focus stocks
We have refreshed our momentum style screen for the first time since inception on 26 July 2016. As before, the screen selects the 25 stocks exhibiting the most extreme momentum characteristics, according to our measurement method. From these we have selected 10 to focus on. Since inception the screen has underperformed both the main small-cap and micro-cap indices against a background of generally rising momentum. We have noted a subset of the basket, where decelerating momentum at the time of measurement appears correlated with significant share price falls since selection. We shall monitor this factor with the new screen, albeit there are only two such stocks showing this pattern, namely Lamprell (not rated) and Gear4music (not rated).
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12 Jan 17
Market share gains and margin boost
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.
06 Jan 17
Strong underlying development
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.
18 Oct 16
Well ahead in first four months
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.
29 Jul 16
European sales even stronger post-Brexit
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.
05 Jul 16
Marching to an online beat
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.
10 May 16
Small Cap Wrap - Another deal in the Potash, Shifting up a Gear4music. A quantum leap for ServicePower
AFPO Memorandum of Understanding, AAU Quarterly Newsletter, ATQT Directorate Change, COS Participation, FITB* Board Changes and Appointment of CEO, G4M Trading Update, MARL* Exercise of Warrants, Termination and CPR, MDZ* Final Results, MXO* Nigerian Update, OPTI* Half Yearly Report, PEG* Directorate Change and Half yearly Report, PLI* Expansion of Phase II, SVR Award and Patents, STEL Licence Application, ZEG Intention to Move to Official List
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09 Sep 15