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Last close As at 26/05/2023
GBP0.19
▲ −0.75 (−3.90%)
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GBP20m
Research: Consumer
musicMagpie’s (MMAG’s) trading update reporting weaker Technology outright revenue in recent months is consistent with statements from a number of consumer-facing companies that have highlighted a more challenging background. With a more cautious outlook for the remainder of H222, management expects lower revenue and a lower EBITDA contribution, albeit still anticipating y-o-y growth, than at the time of the H122 results. We have reduced our FY22–24 EBITDA estimates by 19–30%. Following the weak share price, the FY22 EV/Sales multiple is 0.1x.
musicMagpie |
Weak Technology outright sales |
Trading update |
Retail |
27 September 2022 |
Share price performance
Business description
Next events
Analysts
musicMagpie is a research client of Edison Investment Research Limited |
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musicMagpie’s (MMAG’s) trading update reporting weaker Technology outright revenue in recent months is consistent with statements from a number of consumer-facing companies that have highlighted a more challenging background. With a more cautious outlook for the remainder of H222, management expects lower revenue and a lower EBITDA contribution, albeit still anticipating y-o-y growth, than at the time of the H122 results. We have reduced our FY22–24 EBITDA estimates by 19–30%. Following the weak share price, the FY22 EV/Sales multiple is 0.1x.
Year end |
Revenue (£m) |
EBITDA (£m) |
PBT* |
EPS* |
DPS |
EV/EBITDA |
P/E |
11/20** |
153.4 |
13.9 |
9.2 |
10.52 |
0.0 |
1.2 |
0.8 |
11/21 |
145.5 |
12.2 |
7.9 |
6.11 |
0.0 |
1.3 |
1.3 |
11/22e |
146.3 |
6.5 |
(1.0) |
(0.75) |
0.0 |
2.5 |
N/A |
11/23e |
156.9 |
9.2 |
(0.8) |
(0.64) |
0.0 |
1.8 |
N/A |
11/24e |
168.7 |
11.2 |
1.0 |
0.73 |
0.0 |
1.5 |
11.2 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Exceptional COVID-19 impact.
Weaker demand for Technology outright revenue
Management has reported a slower rate of revenue growth during August and September for outright Technology sales due to more cautious consumer behaviour than was anticipated, and continuing margin pressure. Given the deteriorating macroeconomic outlook and pressures on consumer disposable incomes, management now also assumes a more prudent rate of revenue growth through the end of FY22. Q4 is typically a material contributor to full year results. On the positive side, Rentals revenue has benefited from the more difficult economic environment, the launch on Back Market has been positive, and, we infer, Disc Media and Books revenue is in line with expectations. The higher net debt position at the end of August 2022 of £7.5m (£3.3m end-H122 pre IFRS 16 liabilities) reflects the planned investment in the business (Rentals and SMARTDrop kiosks), lower profitability than expected and likely working capital investment ahead of peak trading in Q4.
FY22–24 EBITDA forecasts reduced by 19–30%
We downgrade our EBITDA estimates for FY22 by c 30% to £6.5m (£9.3m previously), FY23 by c 19% to £9.2m (from £11.3m) and FY24 by c 28% to £11.2m (from £15.6m). Our forecasts imply c 3% revenue growth in H222 versus 15% previously, predominantly due to Rentals growth, estimated to be more profitable over the life of a device. The lower EBITDA and ongoing investment in Rentals (capitalisation and amortisation of devices purchased) lead to forecast operating losses for FY22 and FY23, and an estimated net debt position of £18.5m by end- FY24. In July 2022, management negotiated a new £30m revolving credit facility.
Valuation: FY22e EV/sales multiple 0.1x
MMAG’s share price has been very weak due to a combination of downgrades to profit expectations and general stock market weakness. On revised estimates, the prospective EV/Sales multiple for FY22e is 0.1x and EV/EBITDA multiple is 2.5x.
Exhibit 1: Financial summary
30-November |
£m |
2020 |
2021 |
2022e |
2023e |
2024e |
|
INCOME STATEMENT |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
Revenue |
|
|
153.4 |
145.5 |
146.3 |
156.9 |
168.7 |
Cost of Sales |
(108.6) |
(101.2) |
(107.1) |
(112.4) |
(119.2) |
||
Gross Profit |
44.8 |
44.3 |
39.2 |
44.4 |
49.5 |
||
EBITDA |
|
|
13.9 |
12.2 |
6.5 |
9.2 |
11.2 |
Operating profit (before amort. and excepts.) |
|
|
11.3 |
8.5 |
(0.4) |
(0.1) |
1.9 |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(1.3) |
(4.6) |
(0.7) |
0.0 |
0.0 |
||
Share-based payments |
(0.4) |
(17.4) |
(0.5) |
(1.0) |
(1.5) |
||
Reported operating profit |
9.6 |
(13.5) |
(1.6) |
(1.1) |
0.4 |
||
Net Interest |
(2.1) |
(0.6) |
(0.6) |
(0.8) |
(0.9) |
||
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 |
(1.0) |
(0.8) |
1.0 |
Profit Before Tax (reported) |
|
|
7.0 |
(14.8) |
(2.1) |
(1.8) |
(0.5) |
Reported tax |
1.6 |
2.7 |
(0.0) |
(0.0) |
(0.2) |
||
Profit After Tax (norm) |
10.5 |
6.4 |
(0.8) |
(0.7) |
0.8 |
||
Profit After Tax (reported) |
8.6 |
(12.1) |
(2.1) |
(1.8) |
(0.7) |
||
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 |
(0.8) |
(0.7) |
0.8 |
||
Net income (reported) |
8.6 |
(12.1) |
(2.1) |
(1.8) |
(0.7) |
||
Average Number of Shares Outstanding (m) |
100.0 |
104.9 |
107.8 |
107.8 |
107.8 |
||
EPS - basic normalised (p) |
|
|
10.52 |
6.11 |
(0.75) |
(0.64) |
0.73 |
EPS - normalised fully diluted (p) |
|
|
10.52 |
6.11 |
(0.75) |
(0.64) |
0.73 |
EPS - basic reported (p) |
|
|
8.57 |
(11.56) |
(1.99) |
(1.71) |
(0.66) |
Dividend (p) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
N/A |
(5.1) |
0.5 |
7.2 |
7.6 |
||
Gross Margin (%) |
29.2 |
30.4 |
26.8 |
28.3 |
29.3 |
||
EBITDA Margin (%) |
9.0 |
8.4 |
4.4 |
5.9 |
6.7 |
||
Normalised Operating Margin |
7.4 |
5.8 |
(0.3) |
(0.0) |
1.1 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
13.9 |
21.1 |
28.4 |
31.5 |
35.7 |
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 |
5.5 |
5.7 |
5.7 |
||
Current Assets |
|
|
14.5 |
14.6 |
16.3 |
17.6 |
17.6 |
Stocks |
6.8 |
8.0 |
11.1 |
11.5 |
11.8 |
||
Debtors |
2.5 |
3.7 |
3.7 |
4.0 |
4.3 |
||
Cash & cash equivalents |
5.1 |
2.8 |
1.5 |
2.1 |
1.4 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(18.7) |
(9.0) |
(8.6) |
(8.9) |
(9.3) |
Creditors |
(10.9) |
(8.4) |
(8.0) |
(8.3) |
(8.6) |
||
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) |
(13.4) |
(18.4) |
(21.4) |
Long term borrowings |
(4.2) |
(0.9) |
(11.9) |
(16.9) |
(19.9) |
||
Other long term liabilities |
(3.1) |
(1.6) |
(1.6) |
(1.6) |
(1.6) |
||
Net Assets |
|
|
2.4 |
24.3 |
22.6 |
21.8 |
22.6 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
2.4 |
24.3 |
22.6 |
21.8 |
22.6 |
CASH FLOW |
|||||||
Operating Cash Flow |
13.9 |
11.8 |
6.5 |
9.2 |
11.2 |
||
Working capital |
(0.6) |
(4.9) |
(3.5) |
(0.3) |
(0.3) |
||
Exceptional & other |
(1.3) |
(4.2) |
(0.6) |
(0.2) |
(0.0) |
||
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
(0.2) |
||
Net operating cash flow |
|
|
12.0 |
2.6 |
2.4 |
8.7 |
10.7 |
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) |
(0.6) |
(0.8) |
(0.9) |
||
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 |
(12.4) |
(4.3) |
(3.7) |
||
Opening net debt/(cash) |
|
|
12.6 |
6.3 |
(1.8) |
10.4 |
14.8 |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
(6.4) |
(8.2) |
12.3 |
4.3 |
3.7 |
||
Closing net debt/(cash) |
|
|
6.3 |
(1.8) |
10.4 |
14.8 |
18.5 |
Source: musicMagpie, Edison Investment Research
|
|
Research: Healthcare
Arovella has entered into a strategic collaboration with Imugene, investigating the company’s lead cell-therapy programme CAR19-iNKT (ALA-101) with Imugene’s onCARlytics (CF33-CD19) platform in treating solid tumours. The agreement will see both companies jointly conduct pre-clinical studies for the ALA-101/CF33-CD19 combination, with initial results from the animal studies expected in H123. Combinational oncology treatment regimens are often associated with superior clinical outcomes compared to monotherapies, so we see this partnership as highly positive for the development of ALA-101. Additionally, the study, if successful, may expand the scope of ALA-101’s clinical potential to solid tumours (c 90% of all cancer cases) offering future opportunities for the cell-therapy programme, in our view. We continue to value Arovella at $31m or A$0.05/share.
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