Focusrite has announced its largest ever acquisition, Martin Audio, for c £35.2m net, following the announcement of the acquisition of ADAM Audio in July 2019 for £16.2m. The acquisition diversifies Focusrite into a complementary market that is growing, is profitable and cash generative. The AGM trading statement indicates that Q1 trading is line with expectations. Our forecasts remain unchanged until the acquisition, stated to be earnings accretive by management, completes.
Focusrite |
Another sensible acquisition |
Acquisition and AGM |
Consumer electricals |
20 December 2019 |
Share price performance
Business description
Analysts
Focusrite is a research client of Edison Investment Research Limited |
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Focusrite has announced its largest ever acquisition, Martin Audio, for c £35.2m net, following the announcement of the acquisition of ADAM Audio in July 2019 for £16.2m. The acquisition diversifies Focusrite into a complementary market that is growing, is profitable and cash generative. The AGM trading statement indicates that Q1 trading is line with expectations. Our forecasts remain unchanged until the acquisition, stated to be earnings accretive by management, completes.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
08/18 |
75.1 |
11.3 |
17.6 |
3.3 |
34.8 |
0.5 |
08/19 |
84.7 |
13.8 |
21.4 |
3.8 |
28.6 |
0.6 |
08/20e |
95.6 |
14.2 |
21.7 |
3.9 |
28.2 |
0.6 |
08/21e |
99.0 |
14.4 |
21.9 |
4.0 |
28.0 |
0.7 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Focusrite has announced its largest acquisition and second acquisition in 2019, Martin Audio, from private equity, for a net consideration of c £35.2m (gross £39.2m less cash £4.0m), which will be immediately earnings enhancing. Martin Audio designs and manufactures high-performance loudspeaker systems for touring; therefore, it will diversify Focusrite away from recording and enhance the potential customer base. The live performance market is experiencing good growth. Geographically, Martin is located close to Focusrite, therefore this will enable a greater level of sharing of expertise and, importantly, key management that has led Martin’s turnaround will be retained. For the 12 months to October 2019, Martin’s revenue was £24.4m and EBITDA was £3.4m, therefore the acquisition multiples are 1.4x sales and 10.4x EBITDA. Martin’s EBITDA margin of 13.9% compares to Focusrite’s 20.3% (FY19).
Focusrite has also announced a first quarter FY20 trading statement for the AGM. Revenue growth is ahead of the prior year, helped by the acquisition of ADAM Audio, which is trading in line with expectations. Elsewhere, total revenue is below last year, due to the strength of sterling and a one-off in the comparative period. We retain our underlying existing forecasts; however, we will review them on completion of the acquisition of Martin at the end of December 2019.
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Studio’s interim results and current trading statement indicate improving momentum and profitability across the majority of the businesses, highlighting that the shift to digital is improving the growth outlook. The planned disposal of the Education business should lead to higher growth rates for revenue and higher profitability for the remaining business. We upgrade our FY20 PBT estimate by 2% to take account of the improved gross margin performance, which leads to our DCF-based valuation increasing to 450p.