Strong delivery with further potential

Focusrite 3 May 2017 Update
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Focusrite

Strong delivery with further potential

Interim results

Consumer electronics

3 May 2017

Price

222.50p

Market cap

£129m

Net cash (£m) at February 2017

9.4

Shares in issue

58.1m

Free float

39%

Code

TUNE

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.8

3.0

41.3

Rel (local)

2.3

0.2

21.1

52-week high/low

233.5p

138.0p

Business description

Focusrite is a global music and audio products group supplying hardware and software products used by professional and amateur musicians, which enables the high-quality production of music.

Next events

Pre-close

September 2017

Final results

November 2017

Analysts

Paul Hickman

+44 (0)20 3681 2501

Richard Jones

+44 (0)20 3077 5700

Focusrite is a research client of Edison Investment Research Limited

A number of factors have combined to produce excellent interim results for Focusrite: strong demand for its leading products, exposure to the buoyant US market, a promising result from sales to Amazon, good margin control, and a significant increase in cash generation. We are upgrading our forecasts, cautiously in view of consumer markets, although opportunities in the Far East and online represent potential upside.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

EV:EBITDA
(x)

Yield
(%)

08/15

48.0

7.2

10.5

1.8

21.2

13.4

0.8

08/16

54.3

7.7

11.8

2.0

18.9

12.2

0.9

08/17e

64.9

8.5

12.8

2.3

17.4

10.3

1.0

08/18e

70.5

9.2

13.9

2.4

16.0

9.2

1.1

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items, but after share-based payments. EPS are diluted.

Happy conjunction of positive factors

These results mark a conjunction of several positive factors. Both arms of the business are succeeding, with the Focusrite product group still benefiting from the June 2016 of the Scarlett second-generation launch plus new products, while Novation’s Launchpad is reflecting a wave of popular appeal. Currency is providing net benefits and cash has been boosted with good working capital control.

Strong interim results

Interim results were strong. Revenue was up by 23.7%, with constant currency growth of 12% shared between both product groups. Adjusted pre-tax profit grew by 55% and adjusted EPS by 52%. All regions are in revenue growth, led by the US, which grew 25% on a constant currency basis. Gross margin rose 30bp to 40.1% and EBITDA margin by 50bp to 19.1% year-on-year. Cash has been positively managed with net inflow of £3.8m against an outflow of £2.2m a year ago and closing net cash of £9.4m. We upgrade our FY17 earnings forecast by 5%.

Further positive opportunities

The combination of positive elements does not mean that opportunities are absent. Some result from issues that can be fixed and others from new areas yet to be exploited. Fixable issues include those with certain country distributors and additional product developments for the smaller, growing ranges such as Clarett, Red and Circuit. Open opportunities are the positive early inroads made into the enormous Chinese market and the potential for the online popular market suggested by the first year of selling directly to Amazon in EMEA.

Valuation: Modest increase

On upgraded revenue and cash forecasts, we are raising our DCF-based valuation from 214p to 249p, which is close to our peer valuation of 244p. Further development of the Far East opportunity and extension of the Launchpad demand boost through Amazon are factors that could be a catalyst for the share price.

Interim results: Excellent on sales, profit and cash

Summary of results: Significant growth in revenue, profit and cash

Focusrite has reported strong interim results, on a number of dimensions:

Results are up decisively with adjusted PBT growth of 55% and EPS growth (diluted and adjusted) of 52%.

Revenue is up by 23.7% and this is backed by constant currency growth of 12%.

All regions are in revenue growth, led by the US, which grew 25% on a constant currency basis.

Gross margin is up from 39.8% to 40.1%.

Both product groups are performing well, with the Focusrite group benefiting from the June 2016 new-generation Scarlett launch, and Novation from its signature Launchpad model.

EBITDA margin rose from 18.6% to 19.1% and operating margin remained at 14.3% year-on-year.

Cash has been positively managed with net inflow of £3.8m against an outflow of £2.2m a year ago, to leave £9.4m net cash at February 2017.

Exhibit 1: Summary of interim results

£'000s

H116

H216

2016

H117

Y-o-y H1

Revenue by product type

Focusrite

16,946

20,617

37,563

20,856

23.1%

Novation

7,287

6,396

13,683

9,604

31.8%

Distribution

1,647

1,408

3,055

1,560

-5.3%

Total

25,880

28,421

54,301

32,020

23.7%

Revenue by geography

US

9,069

12,313

21,382

13,246

46.1%

Europe and Middle East

12,064

10,518

22,582

12,958

7.4%

Rest of World

4,747

5,590

10,337

5,816

22.5%

Total

25,880

28,421

54,301

32,020

23.7%

Gross profit

10,305

10,557

20,862

12,855

24.7%

Gross margin

39.8%

37.1%

38.4%

40.1%

0.8%

Adjusted EBITDA

4,821

5,428

10,249

6,131

27.2%

Adjusted EBITDA margin

18.6%

19.1%

18.9%

19.1%

2.8%

Operating profit

3,692

3,985

7,677

4,571

23.8%

Pre-tax profit

2,969

4,694

7,663

4,599

54.9%

EPS (p)

4.6

6.9

11.4

7.0

52.2%

Cash

3,952

5,606

5,606

9,391

137.6%

Source: Focusrite

Performance by product group

Novation product group: Outstanding performance

Novation products have benefited in all geographies from a recent marked improvement in interest and adoption of grid controllers, seen particularly among younger customers. Launchpad is Novation’s brand in the grid controller format, although the upturn has also been noted by competitors.

The rise in demand reflects the greater adoption of these products by high-profile DJs and musicians, who feature the products on their YouTube performances (Launchpad is also widely used to create tribute versions of dance numbers). This combines with the fact that Launchpad is now readily available on Amazon, which is a much wider market than in the past. The upturn in demand is brought into higher relief by comparison with a quieter year in FY16, without so many new products as the year before.

Linked to the boost in Launchpad sales, management also notes an increase in its Midi keyboard, Launchkey, which helps musicians to digitise their performance in an intuitive way. Meanwhile, although the Circuit grid-based groove box continues to grow revenue, management is considering a repositioning to improve performance. Circuit was first launched in October 2015 and is now being updated partly in response to the suggestions made in the active online forums.

App penetration increases

The number of downloads of the Launchpad and BlocsWave apps have now surpassed 6m, growing at around 100,000 per month. The investment in this team and the associated income are both increasing.

Focusrite product group: Scarlett effect plus new products

Focusrite’s revenue growth, at 23.1%, is comparable to that of the company as a whole, of which it makes up two-thirds. It continues to build market share following the renewal of the Scarlett range in June 2016. The second-generation Scarlett range is continuing to gain market share, which is significant as it is already market leader in most of its key markets. The continuation of share gains, from 40% to 49% over the last year, gives assurance that the benefits of the second-generation launch are not just short term, although clearly in FY18 it will be lapping post-launch sales.

Six new products have been launched in the first half: Red 8Pre, Clarett OctoPre, Scarlett OctoPre, Scarlett OctoPre Dynamic, iTrack One Pre and Launch Control XL MK2, as well as a Circuit Components Update. Spanning different price segments and target customer groups, these are aimed at increasing penetration and reach. Feedback from customers, retailers and distributors has been positive to date.

Performance by market

US market: Strong underlying growth

Foreign exchange nearly doubled revenue growth to a remarkable 46%, but even before the dollar effect, constant currency growth of 25% is impressive. It emphasises the fact that the company’s largest market (41% of total revenue) is also its fastest growing, and this is in a consumer economy that is better placed than the UK and most of Europe. Renewed growth from Novation, against a weaker comparative, was one factor fuelling growth, and accelerating demand for commercial and professional-level products in the RedNet range was another. This technology enables simultaneous distribution of multiple signals at high quality, and is significant because it represents increased penetration of a major new market, the live sound and broadcast business-to-business market, which offers further growth opportunities ahead. In addition, the second-generation Scarlett USB range continued to generate good demand, as elsewhere.

EMEA market: Overall growth

Here headline growth of 7% was equivalent to 5% on a constant currency basis, and the picture was more mixed. Growth in the UK was strong at 16%. Clearly, there were declines elsewhere, although this is probably the result in channel changes, and specifically the move online. The adoption of Amazon directly by the company as a sales channel (it was previously used by distributors) is significant and within the last year has risen to represent 13% of EMEA revenue, or around £1.7m in the half. All the incremental sales via Amazon are classified as UK sales, although in practice part of them will have been ordered by customers abroad. So the development of the Amazon channel may be diverting other European sales to the UK category.

Rest of World market: Contrasting picture, encouraging outlook

As with the US, underlying constant currency growth was below the headline at 8% against 22%, but was still significant. The result was the net of some contrasts. Growth in revenue in China reflects early achievement for the new sales office in Hong Kong, and is very promising in view of the size of the market there. Indications are that the fast expanding middle class is developing a strong taste for western popular music, and Focusrite’s principle of making music easy to make is closely aligned with this need. However, declines in Japan and South Korea resulted from issues with the distributor there, which the company is working to resolve. Asia has already been highlighted as a strategic focus area and management intends to continue building its presence with expansion of the sales team, albeit from a low base. Latin America remains a potential growth area, and although it has not received specific growth focus to date, there is a suggestion that it may do so in future, although this is more likely to be through an online presence than a physical establishment.

E-commerce: Promising indications

The e-commerce initiative, launched softly in March 2016, has grown its penetration to over 1% of revenue and clearly has much further to go. In its initial phase it was focused on refurbished products, but management has now started to expand its application to a wider range of products and this is leading to a growth in demand in both the e-commerce channel and the existing dealer network. The strength of Amazon sales is a good indicator of a level of demand through e-commerce channels, and we think it is likely that the company will continue to grow its own e-commerce store, while at the same time recognising the continuing importance of distributor and dealer channels with the important service element that they provide.

Forecast: Cautiously upgrading

We are upgrading our pre-tax profit and earnings forecasts for FY17 by 5.4%.

We assume lower underlying revenue growth of 8% in the second half year compared with 12% in the first, as a result of our overall caution on consumer demand, notwithstanding the independent growth demonstrated in H1 and the company’s 40%+ revenue exposure to the strong US market. It is also inevitable that the boost from the launch of the second-generation Scarlett range in June 2016 will start to fade, and will begin to lap itself by the end of the year. On the other hand, the current demand for Novation’s Launchpad, particularly through the Amazon channel, is encouraging. We expect gross margin of 40.9% in H1 to flatten to 38.0% in the full year as the euro currency advantage from H1 reduces. Conversely, we expect the 25% growth in operating costs in H1, which was driven by timing, to flatten in the full year to 23%.

Similarly we are cautious on revenue growth for FY18 and assuming revenue growth of 9%. We upgrade pre-tax profit and earnings per share by 4%.

Exhibit 2: Forecast changes

Revenue (£m)

PBT (£m)

EPS (p)

Old

New

Change

Old

New

Change

Old

New

Change

08/16

54.3

54.3

N/A

7.7

7.7

N/A

11.8

11.8

N/A

08/17e

62.6

64.9

3.6%

8.0

8.5

5.4%

12.1

12.8

5.4%

08/18e

68.3

70.5

3.2%

8.8

9.2

4.2%

13.3

13.9

4.2%

Source: Focusrite, Edison Investment Research

We expect working capital to remain well controlled and as a result year-end net cash to increase to £10.8m.

Valuation

We believe Focusrite is well placed to achieve sustained earnings and dividend growth based on its ability to remain at the forefront of its competitive and technical market. We value the shares using a DCF projection to place a value on the longer-term income stream available to investors. Although there are few close peers, we also consider valuation relative to a group of smaller companies on near-term earnings expectations.

DCF valuation of 249p

To create a DCF projection we extend our forecast using similar revenue growth and margin assumptions for two years, and out to 10 years on growth, fading in the last three years to a terminal rate of 2%. We assume terminal EBITDA margin of 19.3% (2019e: 17.5%) and capex investment at 7% of revenue, reducing to 6% in the terminal period. We assume an equity-only cost of capital of 8.4% (risk-free rate 2%, risk premium 7%, beta 0.9), resulting in a valuation of 249p/share (of which 142p is in the terminal value). All assumptions are unchanged except that we have increased our terminal margin assumption by 30bp reflecting our higher forecast. Our previous valuation was 214p. This would put the shares on an FY17e P/E of 19.5x and EV/EBITDA of 11.5x. Varying the cost of capital and the terminal growth assumption would give the following ranges:

Exhibit 3: DCF assumption scenario analysis (p)

------------------------------------------------------Terminal growth rate---------------------------------------------------

Cost of capital

0.0%

1.0%

2.0%

3.0%

4.0%

10.0%

175

184

196

210

230

9.0%

197

210

226

248

278

8.0%

225

243

267

301

351

7.0%

262

288

325

380

472

Source: Edison Investment Research

Varying our assumed sales growth and margin assumptions affects the valuation as follows:

Exhibit 4: Growth and margin assumption scenario analysis

---------------------------------------------Sales growth 2019-20e---------------------------------------------------

6%

7%

8%

9%

10%

Margin change pa 2020-25e

0.6pp

244

260

277

294

313

0.5pp

236

251

267

284

302

0.4pp

228

243

258

275

292

0.3pp

220

234

249

265

282

0.2pp

212

225

240

255

271

Source: Edison Investment Research

In addition, our valuation would change by c ±40p for every 1pp change in our discount rate.

Peer group comparison

In our view the small-cap market is the most appropriate context for Focusrite. As there is no close peer, we define the relevant group as UK smaller-cap tech, electronics and consumer companies in relevant subsectors, as well as relevant companies in US and European markets.

For calendar 2017, Focusrite trades at an average 13.1% P/E discount and an average 2.6% EV/EBITDA premium to the group, which suggests that the lower P/E rating reflects its favourable cash-rich capital structure and low tax rate resulting from its ongoing investment in R&D. EV/Sales at 1.6x is close to peers. Adjusting to average peer multiples values Focusrite shares at 257p on a P/E basis and 231p on an EV/EBITDA basis, a blend of 244p, which is close to our DCF valuation.

Exhibit 5: Peer valuation

Calendarised

Country

Price

Market cap

EV

P/E (x)

EV/Sales (x)

EV/EBITDA (x)

CCYm

£m

£m

2017

2018

2017

2018

2017

2018

Universal Electronics

US

70.6

1,017

783

782

19.7

N/A

N/A

N/A

N/A

N/A

Tivo

US

19.4

2,350

1,808

2,220

8.8

9.2

2.9

2.7

6.6

6.1

Morgan Adv. Materials

UK

330.6

943

943

1,262

15.3

13.6

0.9

0.9

6.5

6.1

Photo-Me International

UK

166.6

624

624

536

17.3

16.1

1.9

1.8

6.3

5.9

E2V Technologies

UK

-

603

603

633

N/A

N/A

1.8

1.6

7.9

6.9

Oxford Instruments

UK

894.5

512

512

696

16.5

15.4

1.4

1.3

8.7

8.0

DTS

US

-

760

760

856

N/A

N/A

N/A

N/A

N/A

N/A

XP Power

UK

2637.5

510

510

505

21.8

20.4

2.7

2.6

10.9

10.3

Avid Technology

US

5.6

230

177

291

20.1

N/A

N/A

N/A

N/A

N/A

Gooch & Housego

UK

1260.0

303

303

288

25.6

22.7

2.2

1.9

10.8

9.2

TT Electronics

UK

200.8

326

326

395

15.0

13.6

0.5

0.5

5.5

5.1

Dialight

UK

977.0

319

319

310

27.4

19.2

1.2

1.1

9.5

7.3

Quixant

UK

406.5

266

266

274

27.4

0.0

2.5

N/A

14.8

N/A

Judges Scientific

UK

1537.5

94

94

100

14.6

13.4

1.3

1.2

7.7

6.7

B&C Speakers

IT

12.7

140

116

115

19.7

18.6

3.0

2.9

11.7

11.4

Trakm8 Holdings

UK

77.5

28

28

29

12.4

N/A

N/A

N/A

N/A

N/A

Gear4music (Hldgs)

UK

523.0

105

105

102

47.0

37.4

1.1

0.9

21.3

16.8

Average

20.2

17.7

1.7

1.6

9.9

8.3

Focusrite

UK

223

130

130

17.6

16.6

1.8

1.6

10.1

9.0

9.0

Premium/(discount)

-13.1%

-6.5%

5.0%

-2.2%

2.6%

8.6%

Source: Bloomberg. LSE subsectors Electrical Components & Equipment, Computer Hardware, Recreational Products; relevant audio/video companies from US and European markets. Market cap £25m-1bn. Note: Outliers excluded from table. Prices as at 26 April 2017. N/A = data not available.

Exhibit 6: Financial summary

£'000s

2015

2016

2017e

2018e

2019e

31-August

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

48,029

54,301

64,866

70,519

76,160

Cost of Sales

(29,381)

(33,439)

(40,192)

(43,510)

(46,991)

Gross Profit

18,648

20,862

24,674

27,008

29,169

EBITDA

 

 

9,302

10,249

11,627

12,628

13,628

Normalised operating profit

 

 

7,024

7,677

8,438

9,149

9,702

Amortisation of acquired intangibles

0

0

0

0

0

Exceptionals

(704)

(537)

0

0

0

Share-based payments

0

0

0

0

0

Reported operating profit

6,320

7,140

8,438

9,149

9,702

Net Interest

164

(14)

38

40

45

Joint ventures & associates (post tax)

0

0

0

0

0

Exceptionals

0

0

0

0

0

Profit Before Tax (norm)

 

 

7,188

7,663

8,476

9,189

9,747

Profit Before Tax (reported)

 

 

6,484

7,126

8,476

9,189

9,747

Reported tax

(1,022)

(870)

(1,017)

(1,103)

(1,455)

Profit After Tax (norm)

6,166

6,793

7,459

8,086

8,292

Profit After Tax (reported)

5,462

6,256

7,459

8,086

8,292

Minority interests

0

0

0

0

0

Discontinued operations

0

0

0

0

0

Net income (normalised)

6,166

6,900

7,459

8,086

8,292

Net income (reported)

5,462

6,256

7,459

8,086

8,292

Basic average number of shares outstanding (m)

52.4

53.2

54.1

55.1

55.1

EPS - basic normalised (p)

 

 

11.8

13.0

13.8

14.7

15.1

EPS - normalised (p)

 

 

10.5

11.8

12.8

13.9

14.2

EPS - basic reported (p)

 

 

10.4

11.8

13.8

14.7

15.1

Dividend (p)

1.80

1.95

2.25

2.40

2.55

Revenue growth (%)

17.2

13.1

19.5

8.7

0.0

Gross Margin (%)

38.8

38.4

38.0

38.3

38.3

EBITDA Margin (%)

19.4

18.9

17.9

17.9

17.9

Normalised Operating Margin

14.6

14.1

13.0

13.0

12.7

BALANCE SHEET

Fixed Assets

 

 

5,264

6,367

7,405

8,631

9,787

Intangible Assets

3,941

4,792

5,510

6,573

7,626

Tangible Assets

1,323

1,575

1,895

2,058

2,161

Investments & other

0

0

0

0

0

Current Assets

 

 

22,766

28,191

32,361

38,761

45,295

Stocks

8,633

11,361

10,848

11,744

12,812

Debtors

7,737

11,224

10,678

11,802

12,746

Cash & cash equivalents

6,173

5,606

10,834

15,215

19,736

Other

223

0

0

0

0

Current Liabilities

 

 

(8,809)

(9,256)

(8,025)

(8,634)

(9,479)

Creditors

(8,406)

(8,612)

(7,381)

(7,990)

(8,629)

Tax and social security

(403)

(644)

(644)

(644)

(850)

Short term borrowings

0

0

0

0

0

Other

0

0

0

0

0

Long Term Liabilities

 

 

(743)

(282)

(328)

(397)

(465)

Long term borrowings

0

0

0

0

0

Other long term liabilities

(743)

(282)

(328)

(397)

(465)

Net Assets

 

 

18,478

25,020

31,413

38,362

45,138

Minority interests

0

0

0

0

0

Shareholders' equity

 

 

18,478

25,020

31,413

38,362

45,138

CASH FLOW

Op Cash Flow before WC and tax

9,302

10,249

11,627

12,628

13,628

Working capital

(1,689)

(6,009)

(173)

(1,410)

(1,373)

Exceptional & other

(591)

(417)

(0)

(0)

(0)

Tax

(838)

(165)

(1,017)

(1,103)

(1,455)

Net operating cash flow

 

 

6,184

3,658

10,437

10,115

10,800

Capex

(3,559)

(3,675)

(4,030)

(4,453)

(4,894)

Acquisitions/disposals

0

0

0

0

0

Net interest

6

(111)

38

40

45

Equity financing

0

172

0

0

0

Dividends

(314)

(976)

(1,217)

(1,322)

(1,430)

Other

53

365

0

0

0

Net Cash Flow

2,370

(567)

5,228

4,381

4,521

Opening net debt/(cash)

 

 

(3,803)

(6,173)

(5,606)

(10,834)

(15,215)

FX

0

0

0

0

0

Other non-cash movements

0

0

0

0

0

Closing net debt/(cash)

 

 

(6,173)

(5,606)

(10,834)

(15,215)

(19,736)

Source: Focusrite, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Focusrite and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Focusrite and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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