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.