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Research: Consumer
musicMagpie’s (MMAG’s) FY23 results demonstrated a resilient H2 performance, including a record Black Friday period. Multiple management initiatives, including a strategy to aid lower buying prices, with a focus on selling through channels with a targeted return and cost reductions, helped to improve profitability. EBITDA was up 15.4% to £7.5m, a 100bp improvement in the margin to 5.5%. The improvement in profitability resulted in a reduction in leverage to 1.7x net debt/EBITDA. MMAG remains in the offer period until further notice.
Written by
musicMagpie |
Focus on profits and cash in FY23 |
FY23 results |
Retail |
15 March 2024 |
Share price performance
Business description
Analysts
musicMagpie is a research client of Edison Investment Research Limited |
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musicMagpie’s (MMAG’s) FY23 results demonstrated a resilient H2 performance, including a record Black Friday period. Multiple management initiatives, including a strategy to aid lower buying prices, with a focus on selling through channels with a targeted return and cost reductions, helped to improve profitability. EBITDA was up 15.4% to £7.5m, a 100bp improvement in the margin to 5.5%. The improvement in profitability resulted in a reduction in leverage to 1.7x net debt/EBITDA. MMAG remains in the offer period until further notice.
Year end |
Revenue |
EBITDA |
PBT* |
EPS* |
EV/EBITDA |
P/E |
11/20 |
153.4 |
13.9 |
9.2 |
11.6 |
1.2 |
0.6 |
11/21 |
145.5 |
12.2 |
7.9 |
6.7 |
1.3 |
1.1 |
11/22 |
145.3 |
6.5 |
(0.9) |
(0.8) |
2.5 |
N/A |
11/23 |
136.6 |
7.5 |
(4.2) |
(3.3) |
2.2 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
MMAG’s group revenue fell 6% in FY23 to £136.6m (FY22: £145.3m), following a much-improved H2 performance with the strategic focus on profitability and cash generation, boosted by a record Black Friday period. Within the 1.2% decline in Consumer Technology (70% of FY23 revenue), outright sales fell 4.4% to £87.1m (FY22: £91.2m), although gross profit remained flat at £16m, reflecting a better margin of 18.3% (FY22: 17.5%). From a phasing perspective, H2 was much stronger at £50.1m in revenue compared with £37.1m in H1, which was affected by postal strikes in December 2022 and weaker UK consumer confidence. Rentals increased to £8.3m (FY22: £5.3m), driven by an increase in the active rental customer base to 37.1k (FY22: 30.5k). The active rental customer base was down from the H1 number of 39k due to management’s focus on high-quality rental customers. Disc Media and Books continued its expected decline in the year, although at a slower rate than FY22, down 15.5% to £41.2m (FY22: £48.7m).
Management’s focus on profitability and cash resulted in an improvement in group adjusted EBITDA to £7.5m (FY22: £6.5m), reflecting a 100bp improvement in the margin to 5.5%. Overheads were reduced in the year by £1.3m, which included salary reductions from the CEO, COO and non-executive directors. In the US, measures were taken to improve gross margin through lowered buying prices. Management noted that greater profitability was being found through sourcing product in the US and selling in the UK. MMAG stated that if this continues to be an interesting proposition, the US Technology business could act as a pure sourcing location for the UK business. Below adjusted EBITDA, the operating loss increased to £4.4m (FY22: £0.5m) due to higher D&A charges in the year and some non-underlying items relating to fixed electricity contracts and a write-down in goodwill.
Strategic initiatives including SMARTDrop kiosks, the buying development in the US, an enhanced ‘buy now pay later’ scheme, lower investment in rentals and AI implementation in MMAG’s phone grading systems should result in greater efficiencies realised, underpinning management’s confidence for FY24. Management noted that the year has started well with Q124 in line with expectations.
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Research: Investment Companies
Foresight Solar Fund (FSFL) celebrated its 10-year anniversary of listing on the London Stock Exchange with decade-high cash distributions from assets of £120.4m in its FY23 results (year end 31 December). FY23 also saw FSFL’s divestment programme come to fruition with the sale of a 50% stake in its Spanish Lorca portfolio at a 21% premium to its holding value. The proceeds of this divestment, along with free cash, were used to pay down the fund’s variable rate debt via its revolving credit facility by £40m and to continue to deliver on the share buyback programme, with half of the £40m being deployed in 2023. FSFL released guidance of a 6% y-o-y increase in its dividend (33% dividend growth since IPO) for FY24 at 8p/share (FY23: 7.55p/share) with dividend cover of 1.5x (FY23: 1.6x). There is significant headroom in the dividend cover to operate further out, even in a falling power price environment.