musicMagpie — Record Black Friday and improving profitability

musicMagpie (AIM: MMAG)

Last close As at 27/02/2024

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Research: Consumer

musicMagpie — Record Black Friday and improving profitability

musicMagpie’s (MMAG’s) FY23 trading statement to 30 November 2023 demonstrates good progress made in the second half, which was helped by record Black Friday sales, following a challenging H1. Management’s focus on cost control and higher-quality rental customers resulted in an improvement in profitability, with a 150bp expansion in gross margin and 15.4% EBITDA growth. This enabled a reduction in net debt and a lower net debt/EBITDA leverage at 1.7x (H123: 2.0x). MMAG remains in the offer period until 18 December.

Written by

Milo Bussell

Associate Analyst, Consumer and Media

Consumer

musicMagpie

Record Black Friday and improving profitability

FY23 trading update

Retail

15 December 2023

Price

13.5p

Market cap

£14m

Net debt (£m) at 30 November 2023 (excluding leases)

13.1

Shares in issue

107.8m

Free float

59.7%

Code

MMAG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

Business description

musicMagpie is a circular economy pioneer in refurbished consumer technology and media in the UK and United States. It is expanding its offer into rentals of smartphones and other technology to consumers and corporates, and widening its sourcing infrastructure.

Analysts

Milo Bussell

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

musicMagpie is a research client of Edison Investment Research Limited

musicMagpie’s (MMAG’s) FY23 trading statement to 30 November 2023 demonstrates good progress made in the second half, which was helped by record Black Friday sales, following a challenging H1. Management’s focus on cost control and higher-quality rental customers resulted in an improvement in profitability, with a 150bp expansion in gross margin and 15.4% EBITDA growth. This enabled a reduction in net debt and a lower net debt/EBITDA leverage at 1.7x (H123: 2.0x). MMAG remains in the offer period until 18 December.

Year end

Revenue (£m)

EBITDA (£m)

PBT*

(£m)

EPS*
(p)

DPS
(p)

EV/EBITDA
(x)

P/E
(x)

11/20

153.4

13.9

9.2

11.6

0.0

1.6

1.2

11/21

145.5

12.2

7.9

6.7

0.0

1.9

2.0

11/22

145.3

6.5

(0.9)

(0.8)

0.0

3.5

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

MMAG expects to report group revenue of £136.6m (FY22: £143.3m), down 6% yo-y. Trading saw an improvement in H2, including a record Black Friday period, following a softer first half in which revenues fell 13% y-o-y, affected by UK postal strikes and low UK consumer confidence. Consumer technology was down just 1.2% to £95.4m (FY22: £96.6m), representing a notable improvement in H2. Rentals revenue continues to display strong growth, although from a low base, now at £8.3m (FY22: £5.3m) and accounting for c 6% of total sales (FY22: 3.7%). The benefits from management’s focus on cost efficiencies and the growing contribution from the higher-margin rentals business are delivering improvement in profitability, with the gross margin expanding to 27.7% (FY22: 26.2%) and EBITDA growing 15.4% to £7.5m (FY22: £6.5m). Active rental customer numbers saw healthy growth in the year to 37.1k (FY22: 30.5k). However, this was down from the 39k reported at the interim results as management has focused on more profitable and higher-quality rental customers. The focus on profitability resulted in a £0.5m reduction in net debt to £13.1m (H123: £13.6m), reflecting a lower net debt/EBITDA leverage ratio of 1.7x (H123: 2.0x).

The improvement to trading in H2 underpins management’s confidence heading into FY24 despite the continued challenging consumer environment. The active management of the rental customer base and the ‘buy now pay later’ offer enable MMAG to manage working capital and debt utilisation. The expansion of the SMARTDrop kiosks as announced in August, with three additional locations in high footfall areas, makes MMAG’s services more accessible to consumers.

MMAG remains in the offer period until 18 December after initial discussions with BT Group and Aurelius Group over a possible offer for MMAG didn’t materialise. MMAG announced on 27 November that it remained open to offers from other potential buyers.

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.

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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.

London │ New York │ Frankfurt

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London │ New York │ Frankfurt

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United Kingdom

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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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