Focusrite
Written by
Focusrite |
Positive momentum on trading and cash |
January trading statement |
Consumer electronics |
10 January 2017 |
Share price performance
Business description
Next events
Analysts
Focusrite is a research client of Edison Investment Research Limited |
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Trading for the four months to end December continued the positive trend of the first two to October. We understand that both constant currency trading and exchange rates have been favourable. Cash has also grown encouragingly, reflecting net receipts from the strong sales in late FY16 as well as early FY17. Recent softness in the shares represents excellent medium-term value for a niche market leader with positive growth.
Year |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
EV/EBITDA |
Yield |
08/15 |
48.0 |
7.2 |
10.5 |
1.8 |
20.1 |
12.5 |
0.9 |
08/16 |
54.3 |
7.7 |
11.8 |
2.0 |
17.9 |
11.4 |
0.9 |
08/17e |
62.6 |
8.0 |
12.1 |
2.1 |
17.4 |
10.5 |
1.0 |
08/18e |
68.3 |
8.8 |
13.3 |
2.3 |
15.9 |
9.4 |
1.1 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Four-month revenue and cash confirmed positive
Focusrite has updated the market on its first four months’ trading. This has continued the positive trend of the first two months noted at the preliminary results in October, with November and December revenue growth described as good. This has also been reflected in cash, which has grown strongly.
Trading momentum reflects volume and currency
We read the description of trading momentum as positive, to mean that volume and constant currency revenue have moved positively. It is also true that foreign exchange has moved favourably. Particularly in relation to the euro, this is likely to benefit the bottom line.
Cash trend is encouraging
There has been good cash growth over the previous year. Cash at February 2016 was £4.0m and at August 2016 £5.6m, which we forecast to grow to £7.5m by August 2017. Focusrite’s cash flow is not generally seasonal, and this positive trend reflects receipts for significant sales to dealers on the second-generation Scarlett launch in late FY16, as well as the benefit of enhanced revenue early in FY17, which has now been paid for.
New chief executive in post
New CEO Timothy Carroll is now in post. He has extensive industry experience and was previously a vice president of Avid, another major player in the industry.
Valuation: Medium-term value
The shares had a strong run towards the end of 2016 ahead of the Capital Markets Day on 6 December. Since then they have fallen back a little providing an opportunity for another look. On an FY17e P/E of 17.4x and EV/EBITDA of 10.5x, we believe they still represent excellent medium-term value for a company which, although small, is market leader in its niche and continues to demonstrate good growth.
Exhibit 1: Financial summary
£'000s |
2015 |
2016 |
2017e |
2018e |
2019e |
||
31-August |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
48,029 |
54,301 |
62,600 |
68,342 |
73,809 |
Cost of Sales |
(29,381) |
(33,439) |
(39,448) |
(42,604) |
(46,012) |
||
Gross Profit |
18,648 |
20,862 |
23,152 |
25,738 |
27,797 |
||
EBITDA |
|
|
9,302 |
10,249 |
10,918 |
11,953 |
12,510 |
Normalised operating profit |
|
|
7,024 |
7,677 |
8,042 |
8,815 |
9,012 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
(704) |
(537) |
0 |
0 |
0 |
||
Share-based payments |
0 |
0 |
0 |
0 |
0 |
||
Reported operating profit |
6,320 |
7,140 |
8,042 |
8,815 |
9,012 |
||
Net Interest |
164 |
(14) |
0 |
0 |
0 |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
7,188 |
7,663 |
8,042 |
8,815 |
9,012 |
Profit Before Tax (reported) |
|
|
6,484 |
7,126 |
8,042 |
8,815 |
9,012 |
Reported tax |
(1,022) |
(870) |
(965) |
(1,058) |
(1,352) |
||
Profit After Tax (norm) |
6,166 |
6,793 |
7,077 |
7,757 |
7,660 |
||
Profit After Tax (reported) |
5,462 |
6,256 |
7,077 |
7,757 |
7,660 |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
6,166 |
6,900 |
7,077 |
7,757 |
7,660 |
||
Net income (reported) |
5,462 |
6,256 |
7,077 |
7,757 |
7,660 |
||
Basic average number of shares outstanding (m) |
52.4 |
53.2 |
54.1 |
55.1 |
55.1 |
||
EPS - basic normalised (p) |
|
|
11.8 |
13.0 |
13.1 |
14.1 |
13.9 |
EPS - diluted normalised (p) |
|
|
10.5 |
11.8 |
12.1 |
13.3 |
13.1 |
EPS - basic reported (p) |
|
|
10.4 |
11.8 |
13.1 |
14.1 |
13.9 |
Dividend (p) |
1.80 |
1.95 |
2.10 |
2.25 |
2.40 |
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Revenue growth (%) |
17.2 |
13.1 |
15.3 |
9.2 |
0.0 |
||
Gross Margin (%) |
38.8 |
38.4 |
37.0 |
37.7 |
37.7 |
||
EBITDA Margin (%) |
19.4 |
18.9 |
17.4 |
17.5 |
16.9 |
||
Normalised Operating Margin |
14.6 |
14.1 |
12.8 |
12.9 |
12.2 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
5,264 |
6,367 |
7,597 |
9,020 |
10,448 |
Intangible Assets |
3,941 |
4,792 |
5,498 |
6,506 |
7,534 |
||
Tangible Assets |
1,323 |
1,575 |
2,099 |
2,513 |
2,914 |
||
Investments & other |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
22,766 |
28,191 |
34,472 |
40,272 |
45,798 |
Stocks |
8,633 |
11,361 |
14,158 |
15,407 |
16,640 |
||
Debtors |
7,737 |
11,224 |
12,863 |
14,230 |
15,368 |
||
Cash & cash equivalents |
6,173 |
5,606 |
7,451 |
10,635 |
13,790 |
||
Other |
223 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(8,809) |
(9,256) |
(10,911) |
(11,733) |
(12,799) |
Creditors |
(8,406) |
(8,612) |
(10,267) |
(11,089) |
(11,976) |
||
Tax and social security |
(403) |
(644) |
(644) |
(644) |
(823) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(743) |
(282) |
(328) |
(393) |
(459) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(743) |
(282) |
(328) |
(393) |
(459) |
||
Net Assets |
|
|
18,478 |
25,020 |
30,831 |
37,167 |
42,989 |
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
18,478 |
25,020 |
30,831 |
37,167 |
42,989 |
CASH FLOW |
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Op Cash Flow before WC and tax |
9,302 |
10,249 |
10,918 |
11,953 |
12,510 |
||
Working capital |
(1,689) |
(6,009) |
(2,781) |
(1,795) |
(1,484) |
||
Exceptional & other |
(591) |
(417) |
(0) |
(0) |
(0) |
||
Tax |
(838) |
(165) |
(965) |
(1,058) |
(1,352) |
||
Net operating cash flow |
|
|
6,184 |
3,658 |
7,172 |
9,100 |
9,674 |
Capex |
(3,559) |
(3,675) |
(4,191) |
(4,677) |
(5,173) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
||
Net interest |
6 |
(111) |
0 |
0 |
0 |
||
Equity financing |
0 |
172 |
0 |
0 |
0 |
||
Dividends |
(314) |
(976) |
(1,136) |
(1,239) |
(1,346) |
||
Other |
53 |
365 |
0 |
0 |
0 |
||
Net Cash Flow |
2,370 |
(567) |
1,845 |
3,184 |
3,155 |
||
Opening net debt/(cash) |
|
|
(3,803) |
(6,173) |
(5,606) |
(7,451) |
(10,635) |
FX |
0 |
0 |
0 |
0 |
0 |
||
Other non-cash movements |
0 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(6,173) |
(5,606) |
(7,451) |
(10,635) |
(13,790) |
Source: Company accounts, Edison Investment Research
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JPMorgan European Smaller Companies Trust