musicMagpie — Consumer Technology drives FY22 performance

musicMagpie (AIM: MMAG)

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Research: Consumer

musicMagpie — Consumer Technology drives FY22 performance

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.

Russell Pointon

Written by

Russell Pointon

Director of Content, Consumer and Media

Consumer

musicMagpie

Consumer Technology drives FY22 performance

FY22 results

Retail

9 March 2023

Price

31.5p

Market cap

£34m

Net debt (£m) (excluding leases) at 30 November 2022

8.2

Shares in issue

107.8m

Free float

59.7%

Code

MMAG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(19.0)

38.7

(56.0)

Rel (local)

(19.1)

30.8

(60.7)

52-week high/low

72.5p

8.9p

Business description

musicMagpie is a circular economy pioneer in refurbished consumer technology and media in the UK and United States. It is expanding its offer into rentals of smartphones and other technology to consumers and corporates, and widening its sourcing infrastructure.

Next events

H123 results

June 2023

Analysts

Russell Pointon

+44 (0)20 3077 5700

Milo Bussell

+44 (0)20 3077 5700

musicMagpie is a research client of Edison Investment Research Limited

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
(£m)

EBITDA
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

EV/EBITDA
(x)

P/E
(x)

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

General disclaimer and copyright

This report has been commissioned by musicMagpie and prepared and issued by Edison, in consideration of a fee payable by musicMagpie. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by musicMagpie and prepared and issued by Edison, in consideration of a fee payable by musicMagpie. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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