musicMagpie — Diverging trends in H221

musicMagpie (AIM: MMAG)

Last close As at 19/04/2024

GBP0.07

0.25 (4.00%)

Market capitalisation

GBP8m

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Research: Consumer

musicMagpie — Diverging trends in H221

musicMagpie’s (MMAG) trading update for the year ended November 2021 is encouraging given the differing revenue trends of the individual business lines and the changes in mix, namely, a greater contribution from Technology, which has a higher cash profit but lower percentage margin. Technology was better than expected, with an acceleration in revenue growth in H221 despite the likely dampening effect from the substitutional impact of lower one-off revenue in the short term as MMAG builds a recurring revenue base from smartphone rentals, which appears to have good momentum. Conversely, revenue from higher-margin Media and Books were lower than expected.

Russell Pointon

Written by

Russell Pointon

Director, Consumer

Consumer

musicMagpie

Diverging trends in H221

Retail

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16 December 2021

Price

166p

Market cap

£179m

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Share details

Code

MMAG

Listing

AIM

Shares in issue

107.8m

Business description

musicMagpie is a leader of re-commerce in the UK and United States in the circular economy of consumer technology, books and disc media through its proprietary technology platform. It is expanding its offer into telephone rentals, and widening its sourcing infrastructure.

Bull

Market supported by tailwinds of increasing consumer acceptance of circular economy, rising prices and slower rates of innovation of consumer technology products.

Increasing penetration of rentals increases recurring revenue and quality of earnings.

Entering corporate recycling market enhances sourcing and growth opportunities from its traditional consumer focus.

Bear

The market for disc media is expected to decline due to the shift to digital and streaming media.

Competitors include online re-commerce specialists and marketplaces.

Dividends not expected in the near term as cash flow will be invested in developing and expanding the business.

Analysts

Russell Pointon

+44 (0)20 3077 5700

Sara Welford

+44 (0)20 3077 5700

musicMagpie is a research client of Edison Investment Research Limited

musicMagpie’s (MMAG) trading update for the year ended November 2021 is encouraging given the differing revenue trends of the individual business lines and the changes in mix, namely, a greater contribution from Technology, which has a higher cash profit but lower percentage margin. Technology was better than expected, with an acceleration in revenue growth in H221 despite the likely dampening effect from the substitutional impact of lower one-off revenue in the short term as MMAG builds a recurring revenue base from smartphone rentals, which appears to have good momentum. Conversely, revenue from higher-margin Media and Books were lower than expected.

FY21: Profit in line with expectations

MMAG’s FY21 adjusted EBITDA of £12.2m, a year-on-year decline of c 12%, is in line with consensus (Refinitiv) expectations, while revenue of £145.2m is c 2% below consensus expectations of £148–149m. With UK Technology revenue growth of 5.4% in FY21, we estimate total Technology (UK and US) revenue (c 59% of group total) grew by c 4% y-o-y in H221, an acceleration from H121’s c 1%, due to an impressive first full year for the smart phone subscription business (c 13.5k active customers at period end)), and apparent better underlying outright sales. At c 35% and 6% of group revenue, we estimate revenue for Media and Books declined by c 14% and c 21% respectively for the full year, to give an aggregate decline of c 15%. This compares with management’s guidance at the IPO for a combined decline of c 10% for the year to pre-pandemic levels.

Continuing progress from new initiatives

The rollout of the SMARTDrop kiosk, exclusive to ASDA stores since September 2021, continues at pace with expectations it will be in nearly 300 stores in 2022. With 5,300 smartphones traded in and over £1.5m paid out to customers, there appears to be good momentum in recent months; from launch in November 2020 through to September 2021 MMAG had c 3,000 devices traded in and paid out over £800k. The implied average price per phone of over £283 (£1.5m/5,300 phones) indicates a superior product mix to those sourced online.

Valuation: 22.1x P/E for FY22e

The c 13% share price decline in the last six months has brought the P/E ratio for FY22e down to 22.1x. MMAG’s consensus EPS estimates have been relatively stable since the H121 results versus those of some of the other online retail peers, which have experienced some supply chain disruption and rising operating costs.

Consensus estimates

Year
end

Revenue
(£m)

Adjusted PBT (£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

11/19

131.5

(0.2)

N/A

0.0

N/A

N/A

11/20

153.4

9.2

10.5

0.0

15.8

N/A

11/21e

145.2*

7.6

6.5

0.0

25.5

N/A

11/22e

157.5

9.9

7.5

0.0

22.1

N/A

Source: Refinitiv, company accounts. Note: *Reported by company.

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.

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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.

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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.

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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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 2021 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.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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