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Research: Consumer
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.
musicMagpie |
Diverging trends in H221
Retail |
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16 December 2021 |
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Analysts
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
Source: Refinitiv, company accounts. Note: *Reported by company. |
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Research: Investment Companies
Tetragon Financial Group (Tetragon) reported a 2.6% NAV total return (TR) year to date (ytd) to end-October 2021 in US$ terms. All asset classes except for quoted assets showed positive gross returns, with TFG Asset Management (TFG AM, 37% of portfolio) and bank loans delivering 15.1% and 15.5% returns, respectively. However, this performance was largely offset by ongoing charges and fees (including incentive fees) and share dilution, mostly from share-based compensation. Tetragon is fully invested and had US$150m drawn out of its US$250m revolving credit facility at end-September 2021, with a net gearing ratio at end-October of 7.4%.
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