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Research: Consumer
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
musicMagpie |
Record Black Friday and improving profitability |
FY23 trading update |
Retail |
15 December 2023 |
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 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* |
DPS |
EV/EBITDA |
P/E |
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.
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Research: Investment Companies
The Brunner Investment Trust (BUT) has two co-managers, Christian Schneider (CIO global growth) and Julian Bishop (global growth specialist), who are supported by deputy managers Simon Gergel (CIO UK equities, UK dividend and value specialist) and James Ashworth (global growth specialist). BUT may be considered as a ‘fund for all seasons’ given its steady outperformance in recent years in widely different market environments. The trust’s NAV performance also stands out positively compared with its 12 peers in the AIC Global sector, ranking first over the last three years, second over the last five and fourth over one year. BUT’s dual mandate of both income and capital growth and its straightforward portfolio of listed global equities may be an ideal way for investors to gain exposure to overseas companies.