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Currency in GBP
Last close As at 25/03/2023
GBP0.26
▲ −1.10 (−4.14%)
Market capitalisation
GBP29m
Research: Consumer
musicMagpie (MMAG) delivered FY22 results in line with our expectations despite the tougher environment faced by UK consumer-facing companies. Strong revenue growth from Consumer Technology offset the decline in Disc Media and Books. The multiple initiatives to increase and improve sourcing of products and to grow its end-markets are bearing fruit, as evidenced by the growing proportion of Consumer Technology sales. Our profit expectations are broadly unchanged as we anticipate better growth in Consumer Technology offsetting the decline in Disc Media and Books. The valuation remains at a significant discount to its online peers.
musicMagpie |
Consumer Technology drives FY22 performance |
FY22 results |
Retail |
9 March 2023 |
Share price performance
Business description
Next events
Analysts
musicMagpie is a research client of Edison Investment Research Limited |
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musicMagpie (MMAG) delivered FY22 results in line with our expectations despite the tougher environment faced by UK consumer-facing companies. Strong revenue growth from Consumer Technology offset the decline in Disc Media and Books. The multiple initiatives to increase and improve sourcing of products and to grow its end-markets are bearing fruit, as evidenced by the growing proportion of Consumer Technology sales. Our profit expectations are broadly unchanged as we anticipate better growth in Consumer Technology offsetting the decline in Disc Media and Books. The valuation remains at a significant discount to its online peers.
Year end |
Revenue |
EBITDA |
PBT* |
EPS* |
DPS |
EV/EBITDA |
P/E |
11/21 |
145.5 |
12.2 |
7.9 |
6.11 |
0.0 |
3.5 |
5.2 |
11/22 |
145.3 |
6.5 |
(0.9) |
(0.71) |
0.0 |
6.5 |
N/A |
11/23e |
153.8 |
9.2 |
(1.1) |
(0.86) |
0.0 |
4.6 |
N/A |
11/24e |
165.1 |
11.5 |
0.7 |
0.50 |
0.0 |
3.7 |
62.7 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Success through company initiatives
MMAG’s revenue was broadly in line with the previous year, as strong growth of c 12% in Consumer Technology (66% of FY22 revenue, FY21: 59%) offset the c 18% decline in Disc Media and Books. Consumer Technology benefited from the many initiatives to drive growth, including the development of the rental subscriber base, launch on new platforms (Back Market) and completion of the SMARTDrop kiosk roll-out. Management is successfully balancing the growth in Outright sales with the growth of Rentals, which enjoyed strong growth in active customers to 30.5k at year end (FY21: 13.5k) and has grown further to 36k (end-February 2023). The shift in mix resulted in a 3.9pp fall in the adjusted EBITDA margin to 4.5%. On an absolute basis and relative to revenue, operating cash flow improved due to more favourable working capital movements, which helped to partially fund the anticipated higher investment in Rentals. The better-than-expected net debt position of £8.2m (1.3x adjusted EBITDA) (FY21: net cash post IPO of £1.8m) and £30m credit facility provides MMAG with headroom for continued investment, including in Rentals.
EBITDA estimates broadly unchanged
Management retains confidence in the medium-term outlook although it notes a tough trading environment in Q123, citing the wider macroeconomic environment and disruption caused by postal strikes. Our FY23 and FY24 EBITDA forecasts are broadly unchanged, reflecting the stronger growth rate in Consumer Technology, offsetting lower Disc Media and Books sales growth.
Valuation: Discount to peers
On our FY23 forecasts MMAG trades on 0.3x for EV/sales and 4.6x EV/EBITDA multiples. As such the stock is currently valued at a discount to median FY23 peer multiples of 39% for EV/sales and 41% for EV/EBITDA.
Exhibit 1: Financial summary
£m |
2020 |
2021 |
2022 |
2023e |
2024e |
||
Year end 30 November |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
153.4 |
145.5 |
145.3 |
153.8 |
165.1 |
Cost of Sales |
(108.6) |
(101.2) |
(107.1) |
(111.9) |
(118.1) |
||
Gross Profit |
44.8 |
44.3 |
38.1 |
41.9 |
47.0 |
||
EBITDA |
|
|
13.9 |
12.2 |
6.5 |
9.2 |
11.5 |
Operating profit (before amort. and excepts.) |
|
|
11.3 |
8.5 |
(0.2) |
0.1 |
2.1 |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(1.3) |
(4.6) |
(0.2) |
0.0 |
0.0 |
||
Share-based payments |
(0.4) |
(17.4) |
(0.2) |
(0.3) |
(0.5) |
||
Reported operating profit |
9.6 |
(13.5) |
(0.5) |
(0.1) |
1.6 |
||
Net Interest |
(2.1) |
(0.6) |
(0.8) |
(1.3) |
(1.5) |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(0.6) |
(0.7) |
(0.2) |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
9.2 |
7.9 |
(0.9) |
(1.1) |
0.7 |
Profit Before Tax (reported) |
|
|
7.0 |
(14.8) |
(1.4) |
(1.4) |
0.2 |
Reported tax |
1.6 |
2.7 |
(3.3) |
0.2 |
(0.1) |
||
Profit After Tax (norm) |
10.5 |
6.4 |
(0.8) |
(0.9) |
0.5 |
||
Profit After Tax (reported) |
8.6 |
(12.1) |
(4.7) |
(1.2) |
0.0 |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
10.5 |
6.4 |
(0.8) |
(0.9) |
0.5 |
||
Net income (reported) |
8.6 |
(12.1) |
(4.7) |
(1.2) |
0.0 |
||
Average Number of Shares Outstanding (m) |
100.0 |
104.9 |
107.8 |
107.8 |
107.8 |
||
EPS - basic normalised (p) |
|
|
10.52 |
6.11 |
(0.71) |
(0.86) |
0.50 |
EPS - normalised fully diluted (p) |
|
|
10.52 |
6.11 |
(0.71) |
(0.86) |
0.50 |
EPS - basic reported (p) |
|
|
8.57 |
(11.55) |
(4.38) |
(1.09) |
0.04 |
Dividend (p) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
N/A |
(5.1) |
(0.2) |
5.9 |
7.3 |
||
Gross Margin (%) |
29.2 |
30.4 |
26.3 |
27.3 |
28.4 |
||
EBITDA Margin (%) |
9.0 |
8.4 |
4.5 |
6.0 |
6.9 |
||
Normalised Operating Margin (%) |
7.4 |
5.8 |
(0.1) |
0.1 |
1.3 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
13.9 |
21.1 |
28.9 |
34.8 |
40.1 |
Intangible Assets |
8.4 |
9.7 |
12.4 |
12.6 |
13.1 |
||
Tangible Assets |
3.9 |
6.1 |
14.0 |
19.7 |
24.6 |
||
Investments & other |
1.7 |
5.3 |
2.5 |
2.5 |
2.5 |
||
Current Assets |
|
|
14.5 |
14.6 |
18.8 |
20.0 |
19.3 |
Stocks |
6.8 |
8.0 |
8.8 |
12.0 |
12.3 |
||
Debtors |
2.5 |
3.7 |
2.6 |
2.8 |
3.0 |
||
Cash & cash equivalents |
5.1 |
2.8 |
6.8 |
4.5 |
3.5 |
||
Other |
0.0 |
0.0 |
0.6 |
0.8 |
0.6 |
||
Current Liabilities |
|
|
(18.7) |
(9.0) |
(10.0) |
(13.1) |
(14.2) |
Creditors |
(10.9) |
(8.4) |
(9.3) |
(12.4) |
(13.5) |
||
Tax and social security |
(0.1) |
(0.3) |
0.0 |
0.0 |
0.0 |
||
Short term borrowings |
(7.0) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.7) |
(0.4) |
(0.7) |
(0.7) |
(0.7) |
||
Long Term Liabilities |
|
|
(7.3) |
(2.4) |
(18.1) |
(23.1) |
(26.1) |
Long term borrowings |
(4.2) |
(0.9) |
(14.7) |
(19.7) |
(22.7) |
||
Other long term liabilities |
(3.1) |
(1.6) |
(3.4) |
(3.4) |
(3.4) |
||
Net Assets |
|
|
2.4 |
24.3 |
19.5 |
18.6 |
19.2 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
2.4 |
24.3 |
19.5 |
18.6 |
19.2 |
CASH FLOW |
|||||||
Operating Cash Flow |
13.9 |
11.8 |
5.6 |
9.2 |
11.5 |
||
Working capital |
(0.6) |
(4.9) |
1.0 |
(0.3) |
0.6 |
||
Exceptional & other |
(1.3) |
(4.2) |
(0.5) |
0.0 |
0.0 |
||
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net operating cash flow |
|
|
12.0 |
2.6 |
6.2 |
8.9 |
12.1 |
Capex |
(1.9) |
(7.2) |
(14.2) |
(14.1) |
(13.8) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net interest |
(2.7) |
(2.3) |
(0.6) |
(1.3) |
(1.5) |
||
Equity financing |
0.0 |
14.5 |
0.0 |
0.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(1.1) |
(0.7) |
(1.0) |
(0.9) |
(0.9) |
||
Net Cash Flow |
6.3 |
6.9 |
(9.6) |
(7.3) |
(4.0) |
||
Opening net debt/(cash) (excluding leases) |
|
|
12.6 |
6.3 |
(1.8) |
8.2 |
15.2 |
FX |
0.0 |
0.0 |
0.1 |
0.0 |
0.0 |
||
Other non-cash movements |
(6.4) |
(8.2) |
9.9 |
7.3 |
4.0 |
||
Closing net debt/(cash) |
|
|
6.3 |
(1.8) |
8.2 |
15.2 |
19.2 |
Source: musicMagpie, Edison Investment Research
|
|
Research: Investment Companies
In times of economic stress or extreme investor risk aversion, small-cap stocks are frequently indiscriminately sold down by investors, which has created significant headwinds for European Assets Trust (EAT) over the past 12 months. Factors like stock market volatility created by the war in Ukraine and associated secondary effects such as supply chain disruption, lower economic growth, higher inflation and more hawkish central bank activity have contributed to weak investor sentiment towards European small-cap stocks. Also, the rotation away from long-duration growth assets has presented seismic challenges for managers regardless of asset class, but especially for European smaller companies. In our November 2022 update on EAT, we made the case for backing the experienced management duo, and continue to believe that once markets focus on the fundamentals of the innovation, growth and cheapness in the market, EAT and European smaller companies are well placed to outperform again.
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