Despite macroeconomic headwinds, in its closing update Focusrite has confirmed consensus beating FY19 revenue (c £84m vs our forecast £79.8m) and EBITDA, reflecting the success of its global growth strategy and strength of the brands. The launch of the third-generation Scarlett product ranges in July has been well received, with further significant releases anticipated in H1 FY20. After including the recent £16.2m acquisition of ADAM Audio, net cash stood at £14.9m (FY18: £22.8m). We raise our FY19 and FY20 PBT forecasts by 4% and 3% respectively.
Written by
Focusrite |
Trading ahead of expectations |
Closing update |
Consumer electricals |
13 September 2019 |
Share price performance
Business description
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Focusrite is a research client of Edison Investment Research Limited |
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Despite macroeconomic headwinds, in its closing update Focusrite has confirmed consensus beating FY19 revenue (c £84m vs our forecast £79.8m) and EBITDA, reflecting the success of its global growth strategy and strength of the brands. The launch of the third-generation Scarlett product ranges in July has been well received, with further significant releases anticipated in H1 FY20. After including the recent £16.2m acquisition of ADAM Audio, net cash stood at £14.9m (FY18: £22.8m). We raise our FY19 and FY20 PBT forecasts by 4% and 3% respectively.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
08/17 |
66.1 |
9.5 |
14.8 |
2.7 |
35.7 |
0.5 |
08/18 |
75.1 |
11.3 |
17.5 |
3.3 |
30.2 |
0.6 |
08/19e |
83.8 |
13.0 |
19.8 |
3.6 |
26.8 |
0.7 |
08/20e |
94.4 |
13.7 |
20.4 |
3.7 |
25.9 |
0.7 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. EPS based on diluted number of shares.
A strong finish to the year
Focusrite has released an upbeat closing update for FY19 confirming revenue of c £84m, ahead of market expectations (Edison FY19e: £79.8m). This includes growth of c 10% (6% CCY) in the existing business plus six weeks of revenue for the recently acquired ADAM Audio studio monitor business. EBITDA is also expected to be ahead of market expectations (Edison FY19E: £16.3m) with margins having remained broadly consistent with the prior year. Robust cash generation resulted in net cash of £14.9m at 21 August, after taking into account the £16.2m acquisition of ADAM in July (FY18: £22.8m).
A healthy pipeline of significant new product releases
The results are testament to the success of Focusrite’s global growth strategy, despite macroeconomic headwinds, and the strength of the core brands. The third-generation Scarlett range of products was released in July and has been well received. Scarlett accounts for c 75% of Focusrite’s divisional revenue and is particularly popular in the US. Product development and innovation remain at the heart of the business, with further significant releases anticipated in H1 FY20.
Forecasts upgraded for FY19 and FY20
We raise our FY19e PBT by 4% to £13.0m to reflect company guidance for sales and margins. Our FY20e PBT increases by 3% to £13.7m, after factoring in conservative sales growth assumptions across Focusrite’s markets and broadly stable margins for the core business. As before, we also include a full year of revenue and earnings for ADAM Audio, but cautiously assume that Focusrite’s current distribution of third-party studio monitors ceases (c £3m of revenue).
Valuation: Slightly ahead of the current share price
Our DCF-based valuation increases to 544p per share (previously 530p) to reflect the conservative uplift to our forecasts.
Exhibit 1: Financial summary
£000s |
2017 |
2018 |
2019e |
2020e |
||
31-August |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
66,055 |
75,121 |
83,844 |
94,407 |
Cost of Sales |
(39,704) |
(43,447) |
(48,599) |
(55,182) |
||
Gross Profit |
26,351 |
31,674 |
35,245 |
39,225 |
||
EBITDA |
|
|
13,109 |
15,485 |
16,787 |
18,113 |
Operating profit (before amort. and except). |
|
|
9,470 |
11,613 |
12,987 |
13,664 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
329 |
(648) |
0 |
||
Share-based payments |
0 |
0 |
0 |
0 |
||
Reported operating profit |
9,470 |
11,942 |
12,339 |
13,664 |
||
Net Interest |
42 |
(270) |
20 |
60 |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
9,512 |
11,343 |
13,007 |
13,724 |
Profit Before Tax (reported) |
|
|
9,512 |
11,672 |
12,359 |
13,724 |
Reported tax |
(959) |
(1,199) |
(1,444) |
(1,647) |
||
Profit After Tax (norm) |
8,553 |
10,144 |
11,563 |
12,077 |
||
Profit After Tax (reported) |
8,553 |
10,473 |
10,915 |
12,077 |
||
Minority interests |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
8,553 |
10,144 |
11,563 |
12,077 |
||
Net income (reported) |
8,553 |
10,473 |
10,915 |
12,077 |
||
Average number of Shares Outstanding (m) |
55.4 |
56.8 |
57.7 |
58.1 |
||
EPS - normalised (p) |
|
|
14.8 |
17.9 |
20.0 |
20.8 |
EPS - normalised fully diluted (p) |
|
|
14.8 |
17.5 |
19.8 |
20.4 |
EPS - basic reported (p) |
|
|
15.4 |
18.4 |
18.9 |
20.8 |
Dividend per share (p) |
2.7 |
3.3 |
3.6 |
3.7 |
||
Revenue growth (%) |
21.6 |
13.7 |
11.6 |
12.6 |
||
Gross Margin (%) |
39.9 |
42.2 |
42.0 |
41.5 |
||
EBITDA Margin (%) |
19.8 |
20.6 |
20.0 |
19.2 |
||
Normalised Operating Margin |
14.3 |
15.5 |
15.5 |
14.5 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
6,332 |
7,314 |
10,750 |
13,725 |
Intangible Assets |
4,963 |
6,039 |
9,158 |
11,963 |
||
Tangible Assets |
1,369 |
1,275 |
1,592 |
1,762 |
||
Investments & other |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
36,126 |
47,612 |
43,115 |
50,904 |
Stocks |
9,000 |
11,391 |
14,380 |
16,630 |
||
Debtors |
12,952 |
13,310 |
13,783 |
15,519 |
||
Cash & cash equivalents |
14,174 |
22,811 |
14,851 |
18,651 |
||
Other |
0 |
100 |
102 |
104 |
||
Current Liabilities |
|
|
(8,663) |
(11,136) |
(13,030) |
(13,437) |
Creditors |
(8,204) |
(10,709) |
(12,516) |
(12,851) |
||
Tax and social security |
(459) |
(427) |
(514) |
(586) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(245) |
(300) |
(467) |
(616) |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(245) |
(300) |
(467) |
(616) |
||
Net Assets |
|
|
33,550 |
43,490 |
40,369 |
50,576 |
Minority interests |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
33,550 |
43,490 |
40,369 |
50,576 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
13,109 |
15,485 |
16,787 |
18,113 |
||
Working capital |
407 |
(427) |
(1,655) |
(3,652) |
||
Exceptional & other |
137 |
203 |
(648) |
(0) |
||
Tax |
(633) |
(478) |
(1,444) |
(1,647) |
||
Net operating cash flow |
|
|
13,020 |
14,783 |
13,041 |
12,814 |
Capex |
(3,614) |
(4,507) |
(6,150) |
(6,924) |
||
Acquisitions (net of acquired working capital) |
0 |
0 |
(12,800) |
0 |
||
Net interest |
(42) |
(36) |
20 |
60 |
||
Equity financing |
258 |
306 |
0 |
0 |
||
Dividends |
(1,138) |
(1,679) |
(2,071) |
(2,150) |
||
Other |
84 |
(230) |
0 |
0 |
||
Net Cash Flow |
8,568 |
8,637 |
(7,960) |
3,800 |
||
Opening net debt/(cash) |
|
|
(5,606) |
(14,174) |
(22,811) |
(14,851) |
FX |
0 |
0 |
0 |
0 |
||
Other non-cash movements |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(14,174) |
(22,811) |
(14,851) |
(18,651) |
Source: Company data, Edison Investment Research
|
|
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