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GBP18m
Research: Consumer
musicMagpie’s (MMAG) headline H122 figures were well flagged in the June 2022 trading update, with profitability and cash flow driven by the changing business mix. Management is confident about recent growth initiatives: Rentals delivered strong subscriber growth despite limited marketing, SMARTDrop kiosks are bringing valuable new customers to MMAG and its partner (Asda), and offering products on new marketplaces (eg Back Market) as well as expansion of the offer available on Amazon UK (US to follow) expands the potential customer base. The appointment of an executive to focus on developing Magpie Circular (corporate recycling) should spur further growth. Our operational estimates are unchanged.
musicMagpie |
Management optimistic about growth initiatives |
H122 results |
Retail |
28 July 2022 |
Share price performance
Business description
Next events
Analysts
musicMagpie is a research client of Edison Investment Research Limited |
musicMagpie’s (MMAG) headline H122 figures were well flagged in the June 2022 trading update, with profitability and cash flow driven by the changing business mix. Management is confident about recent growth initiatives: Rentals delivered strong subscriber growth despite limited marketing, SMARTDrop kiosks are bringing valuable new customers to MMAG and its partner (Asda), and offering products on new marketplaces (eg Back Market) as well as expansion of the offer available on Amazon UK (US to follow) expands the potential customer base. The appointment of an executive to focus on developing Magpie Circular (corporate recycling) should spur further growth. Our operational estimates are unchanged.
Year end |
Revenue (£m) |
EBITDA* (£m) |
PBT* |
EPS* |
DPS |
EV/EBITDA |
P/E |
11/20** |
153.4 |
13.9 |
9.2 |
10.5 |
0.0 |
3.5 |
4.3 |
11/21 |
145.5 |
12.2 |
7.9 |
6.1 |
0.0 |
4.0 |
7.4 |
11/22e |
154.7 |
9.3 |
1.9 |
1.4 |
0.0 |
5.2 |
31.8 |
11/23e |
166.1 |
11.3 |
1.4 |
1.0 |
0.0 |
4.3 |
44.1 |
11/24e |
179.9 |
15.6 |
5.6 |
3.9 |
0.0 |
3.1 |
11.7 |
Note: *EBITDA, PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Exceptional COVID impact.
Growth and cash flow driven by Technology/Rentals
Group revenue declined by 2% y-o-y (to £71.3m) as Technology revenue grew by c 16%, while Disc Media and Books declined by c 24% due mainly to normalisation post COVID-related lockdowns. Adjusted EBITDA declined by 59% (to £2.6m), predominantly due to the gross margin pressure in Technology highlighted earlier in the year, as well as the normalisation in trading for Disc Media and Books. Operating cash conversion relative to adjusted EBITDA improved to 103.1% (H122: 96.4%) helped by a modest improvement in working capital. Expected higher capital investment (SMARTDrop kiosks and technology rentals) led to lower free cash flow generation and a period-end net debt position (pre IFRS 16) of £3.3m (net cash £1.8m at end FY21). A new three-year £30m revolving credit facility will enable MMAG to better manage its cash cycle.
No change to operational estimates
In its outlook, management highlights that the business is well positioned for future growth and adjusted EBITDA for FY22 is in line with its expectations. Edison and management expect Technology (Outright and Rentals) to provide a greater revenue contribution in H222, while Disc Media and Books are expected to perform broadly in line with H122. We make no changes to our operational estimates (beyond a minor change to depreciation), but now assume that MMAG draws down an extra £2m of its new revolving credit facility (£3m+ versus £1m+ previously) around peak trading in Q3 and Q4.
Valuation: DCF-based valuation 168p/share
Our DCF-based valuation remains 168p/share. Our recent report, Consumer watch, highlighted MMAG as one of the companies whose valuation screens well across the consumer sectors.
Exhibit 1: Financial summary
£m |
2020 |
2021 |
2022e |
2023e |
2024e |
||
30-November |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
153.4 |
145.5 |
154.7 |
166.1 |
179.9 |
Cost of Sales |
(108.6) |
(101.2) |
(111.8) |
(118.6) |
(126.7) |
||
Gross Profit |
44.8 |
44.3 |
42.9 |
47.5 |
53.2 |
||
EBITDA |
|
|
13.9 |
12.2 |
9.3 |
11.3 |
15.6 |
Operating profit (before amort. and excepts.) |
|
|
11.3 |
8.5 |
2.4 |
2.0 |
6.2 |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(1.3) |
(4.6) |
0.0 |
0.0 |
0.0 |
||
Share-based payments |
(0.4) |
(17.4) |
(0.5) |
(1.0) |
(1.5) |
||
Reported operating profit |
9.6 |
(13.5) |
1.9 |
1.0 |
4.7 |
||
Net Interest |
(2.1) |
(0.6) |
(0.5) |
(0.6) |
(0.7) |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(0.6) |
(0.7) |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
9.2 |
7.9 |
1.9 |
1.4 |
5.5 |
Profit Before Tax (reported) |
|
|
7.0 |
(14.8) |
1.4 |
0.4 |
4.0 |
Reported tax |
1.6 |
2.7 |
(0.1) |
(0.0) |
(1.1) |
||
Profit After Tax (norm) |
10.5 |
6.4 |
1.5 |
1.1 |
4.2 |
||
Profit After Tax (reported) |
8.6 |
(12.1) |
1.3 |
0.4 |
3.0 |
||
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 |
1.5 |
1.1 |
4.2 |
||
Net income (reported) |
8.6 |
(12.1) |
1.3 |
0.4 |
3.0 |
||
Average Number of Shares Outstanding (m) |
100.0 |
104.9 |
107.8 |
107.8 |
107.8 |
||
EPS - basic normalised (p) |
|
|
10.52 |
6.11 |
1.41 |
1.02 |
3.86 |
EPS - normalised fully diluted (p) |
|
|
10.52 |
6.11 |
1.41 |
1.02 |
3.86 |
EPS - basic reported (p) |
|
|
8.57 |
(11.56) |
1.23 |
0.37 |
2.74 |
Dividend (p) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
! |
(5.1) |
6.3 |
7.4 |
8.3 |
||
Gross Margin (%) |
29.2 |
30.4 |
27.7 |
28.6 |
29.6 |
||
EBITDA Margin (%) |
9.0 |
8.4 |
6.0 |
6.8 |
8.7 |
||
Normalised Operating Margin |
7.4 |
5.8 |
1.5 |
1.2 |
3.4 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
13.9 |
21.1 |
27.9 |
30.6 |
34.5 |
Intangible Assets |
8.4 |
9.7 |
11.1 |
10.3 |
10.8 |
||
Tangible Assets |
3.9 |
6.1 |
11.8 |
15.6 |
19.2 |
||
Investments & other |
1.7 |
5.3 |
5.0 |
4.7 |
4.4 |
||
Current Assets |
|
|
14.5 |
14.6 |
15.5 |
17.6 |
18.6 |
Stocks |
6.8 |
8.0 |
8.3 |
8.6 |
9.0 |
||
Debtors |
2.5 |
3.7 |
4.0 |
4.3 |
4.6 |
||
Cash & cash equivalents |
5.1 |
2.8 |
3.3 |
4.8 |
5.0 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(18.7) |
(9.0) |
(8.9) |
(9.2) |
(9.7) |
Creditors |
(10.9) |
(8.4) |
(8.2) |
(8.6) |
(9.1) |
||
Tax and social security |
(0.1) |
(0.3) |
(0.3) |
(0.3) |
(0.3) |
||
Short term borrowings |
(7.0) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.7) |
(0.4) |
(0.4) |
(0.4) |
(0.4) |
||
Long Term Liabilities |
|
|
(7.3) |
(2.4) |
(8.4) |
(11.4) |
(11.4) |
Long term borrowings |
(4.2) |
(0.9) |
(6.9) |
(9.9) |
(9.9) |
||
Other long-term liabilities |
(3.1) |
(1.6) |
(1.6) |
(1.6) |
(1.6) |
||
Net Assets |
|
|
2.4 |
24.3 |
26.1 |
27.5 |
32.0 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
2.4 |
24.3 |
26.1 |
27.5 |
32.0 |
CASH FLOW |
|||||||
Operating Cash Flow |
13.9 |
11.8 |
9.3 |
11.3 |
15.6 |
||
Working capital |
(0.6) |
(4.9) |
(0.6) |
(0.2) |
(0.3) |
||
Exceptional & other |
(1.3) |
(4.2) |
0.5 |
0.3 |
0.3 |
||
Tax |
0.0 |
0.0 |
(0.1) |
(0.0) |
(1.1) |
||
Net operating cash flow |
|
|
12.0 |
2.6 |
9.1 |
11.3 |
14.5 |
Capex |
(1.9) |
(7.2) |
(13.6) |
(11.6) |
(12.9) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net interest |
(2.7) |
(2.3) |
(0.5) |
(0.6) |
(0.7) |
||
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) |
(0.6) |
(0.6) |
(0.6) |
||
Net Cash Flow |
6.3 |
6.9 |
(5.6) |
(1.5) |
0.3 |
||
Opening net debt/(cash) |
|
|
12.6 |
6.3 |
(1.8) |
3.6 |
5.1 |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
(6.4) |
(8.2) |
5.4 |
1.5 |
(0.3) |
||
Closing net debt/(cash) |
|
|
6.3 |
(1.8) |
3.6 |
5.1 |
4.9 |
Source: musicMagpie, Edison Investment Research
|
|
Research: Healthcare
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