Focusrite |
Marching on |
H120 trading update |
Consumer electricals |
26 March 2020 |
Share price performance
Business description
Next events
Analyst
Focusrite is a research client of Edison Investment Research Limited |
Focusrite has issued a reassuring trading update for H120. Sales growth is in line with expectations, against a tough comparative. With the majority of sourcing from Asia, there had been fears about its ability to continue sourcing product to satisfy consumer demand, which still looks ‘buoyant’, but deliveries have resumed quickly. Our underlying forecasts are unchanged, but we incorporate the acquisition of Martin Audio, leading to EPS upgrades of 1% for FY20 and 7% for FY21. The recent de-rating has brought multiples back towards historic averages: EV/EBITDA for FY20e of 12.2x (average of 11.1x) and P/E for FY20e of 19.5x (average of 17.8x).
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
08/18 |
75.1 |
11.3 |
17.8 |
3.3 |
24.0 |
0.8 |
08/19 |
84.7 |
13.8 |
21.4 |
3.8 |
20.0 |
0.9 |
08/20e |
111.6 |
14.4 |
21.9 |
3.9 |
19.5 |
0.9 |
08/21e |
123.7 |
15.6 |
23.5 |
4.0 |
18.2 |
0.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H120 trading: Encouraging
The trading update for H120 indicates that revenue has grown by c 24% to c £50m. The acquisitions of ADAM Audio and Martin Audio contributed c £12m, and therefore underlying revenue for the core Focusrite business reduced by 6%, to £38m. This is against a tough comparative when it benefited from tariff-related price increases in the US. In addition, orders for £2m, which could not be fulfilled during H120 due the impact of COVID-19, will fall into H220. Cash generation has been positive: net debt of c £20m compares with c £25m post the acquisition of Martin Audio at the end of December 2019. The announcement that Jeremy Wilson, CFO since the IPO in 2014, will leave by the end of CY20, should ensure a smooth handover.
No change to underlying forecasts for FY20
We leave our underlying forecasts for FY20 unchanged. At present, demand continues to look encouraging; management points to ‘buoyant’ demand but the outbreak of COVID-19 could have both a positive and negative influence on supply and demand. On the positive side, enforced isolation could increase demand as musicians and hobbyists have more time to devote to music. On the negative side, fulfilment of orders from online retailers etc could be more challenging, halting the live performance market could negatively affect demand and there could be further supply disruptions from sourcing. Shipping from Asia to Europe and the US takes c four weeks. We now incorporate the acquisition of Martin Audio into our forecasts for FY20 and FY21. Our FY20 EPS forecast increases by 1% to 21.9p from 21.7p, and our FY21 EPS forecast increases by 7% to 23.5p from 21.9p.
Valuation: Recent de-rating
On our new forecasts, the EV/EBITDA multiples for FY20e and FY21e are 12.2x and 11.7x respectively versus an average since IPO of 11.1x. The P/E multiples for FY20e and FY21e are 19.5x and 18.2x versus the average since the IPO of 17.8x.
Exhibit 1: Financial summary
£'k |
2017 |
2018 |
2019 |
2020e |
2021e |
||
31-August |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
66,055 |
75,121 |
84,665 |
111,594 |
123,714 |
Cost of Sales |
(39,704) |
(43,447) |
(48,899) |
(64,278) |
(71,012) |
||
Gross Profit |
26,351 |
31,674 |
35,766 |
47,316 |
52,702 |
||
EBITDA |
|
|
13,109 |
15,485 |
17,197 |
20,432 |
22,219 |
Operating profit (before amort. and except). |
|
|
9,470 |
11,613 |
13,549 |
14,815 |
15,663 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
(3,075) |
(3,690) |
||
Exceptionals |
0 |
329 |
(737) |
(2,600) |
0 |
||
Share-based payments |
0 |
0 |
0 |
0 |
0 |
||
Reported operating profit |
9,470 |
11,942 |
12,812 |
9,140 |
11,973 |
||
Net Interest |
42 |
(270) |
201 |
(390) |
(100) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
9,512 |
11,343 |
13,750 |
14,425 |
15,563 |
Profit Before Tax (reported) |
|
|
9,512 |
11,672 |
13,013 |
8,750 |
11,873 |
Reported tax |
(959) |
(1,199) |
(1,349) |
(1,659) |
(1,790) |
||
Profit After Tax (norm) |
8,553 |
10,144 |
12,401 |
12,766 |
13,773 |
||
Profit After Tax (reported) |
8,553 |
10,473 |
11,664 |
7,091 |
10,083 |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
8,553 |
10,207 |
12,401 |
12,766 |
13,773 |
||
Net income (reported) |
8,553 |
10,473 |
11,664 |
7,091 |
10,083 |
||
Average number of Shares Outstanding (m) |
54.6 |
56.2 |
57.2 |
57.5 |
57.8 |
||
EPS - normalised (p) |
|
|
15.7 |
18.1 |
21.7 |
22.2 |
23.8 |
EPS - normalised fully diluted (p) |
|
|
14.7 |
17.8 |
21.4 |
21.9 |
23.5 |
EPS - basic reported (p) |
|
|
15.7 |
18.6 |
20.4 |
12.3 |
17.5 |
Dividend per share (p) |
2.7 |
3.3 |
3.8 |
3.9 |
4.0 |
||
Revenue growth (%) |
21.6 |
13.7 |
12.7 |
31.8 |
10.9 |
||
Gross Margin (%) |
39.9 |
42.2 |
42.2 |
42.4 |
42.6 |
||
EBITDA Margin (%) |
19.8 |
20.6 |
20.3 |
18.3 |
18.0 |
||
Normalised Operating Margin |
14.3 |
15.5 |
16.0 |
13.3 |
12.7 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
6,332 |
7,314 |
25,705 |
58,831 |
55,922 |
Intangible Assets |
4,963 |
6,039 |
24,103 |
56,872 |
53,660 |
||
Tangible Assets |
1,369 |
1,275 |
1,602 |
1,959 |
2,262 |
||
Investments & other |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
36,126 |
47,612 |
48,875 |
37,716 |
42,371 |
Stocks |
9,000 |
11,391 |
15,182 |
19,372 |
22,374 |
||
Debtors |
12,952 |
13,310 |
18,188 |
18,344 |
19,998 |
||
Cash & cash equivalents |
14,174 |
22,811 |
15,505 |
0 |
0 |
||
Other |
0 |
100 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(8,663) |
(11,136) |
(16,909) |
(15,729) |
(16,384) |
Creditors |
(8,204) |
(10,709) |
(15,664) |
(14,969) |
(15,564) |
||
Tax and social security |
(459) |
(427) |
(618) |
(760) |
(820) |
||
Short term borrowings |
0 |
0 |
(627) |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(245) |
(300) |
(4,284) |
(24,619) |
(13,499) |
Long term borrowings |
0 |
0 |
0 |
(15,292) |
(4,903) |
||
Other long term liabilities |
(245) |
(300) |
(4,284) |
(9,327) |
(8,596) |
||
Net Assets |
|
|
33,550 |
43,490 |
53,387 |
56,199 |
68,410 |
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
33,550 |
43,490 |
53,387 |
56,199 |
68,410 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
13,109 |
15,485 |
17,197 |
20,432 |
22,219 |
||
Working capital |
407 |
(426) |
(2,218) |
(5,041) |
(4,060) |
||
Exceptional & other |
137 |
203 |
(386) |
475 |
3,690 |
||
Tax |
(633) |
(478) |
(825) |
(1,659) |
(1,790) |
||
Net operating cash flow |
|
|
13,020 |
14,784 |
13,768 |
14,207 |
20,059 |
Capex |
(3,614) |
(4,512) |
(4,943) |
(6,548) |
(7,259) |
||
Acquisitions (net of acquired working capital) |
0 |
0 |
(14,996) |
(35,200) |
0 |
||
Net interest |
(42) |
(36) |
58 |
(390) |
(100) |
||
Equity financing |
258 |
306 |
0 |
0 |
0 |
||
Dividends |
(1,138) |
(1,679) |
(2,005) |
(2,239) |
(2,311) |
||
Other |
84 |
(226) |
185 |
0 |
0 |
||
Net Cash Flow |
8,568 |
8,637 |
(7,933) |
(30,170) |
10,389 |
||
Opening net debt/(cash) |
|
|
(5,606) |
(14,174) |
(22,811) |
(14,878) |
15,292 |
FX |
0 |
0 |
0 |
0 |
0 |
||
Other non-cash movements |
0 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(14,174) |
(22,811) |
(14,878) |
15,292 |
4,903 |
Source: Company accounts, Edison Investment Research
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