Gear4music (holdings) Share Discussion Threads

[alphabeta4] 23/6/2020 11:41

Yes, thanks Hastings.

[saracen3] 23/6/2020 11:30

Many thanks for sharing Hastings

[alphabeta4] 23/6/2020 11:19

Back in for the first time since early 2018 at £3.61 first thing, had to use spread to achieve! I have since gone right through the numbers and come out with 19.5p eps for this year based on a 22% sales increase and £900k of combined reduced marketing costs and margin improvements. If anything I've been pretty undemanding as marketing was £9.3m year just gone, 10% off that would do this alone (they allude in the statement that marketing costs have dropped significantly since Covid 19, presumably off the advertising industry downturn).
Thinking through that this used to trade off a forward of between 50 to 60, even on a forward of 40 should be worth £7.60 in short order and c£10 within about 6 months off a forward eps of around 25p.
I'm conscious this probably sounds a bit of a ramp but I was here in 2016 and predicted it before. GLA :)

Edit: for fun / to show I'm not bluffing my Sept 2016 post is below, the prediction was at the bottom. This feels like being reunited with an old friend..

Alphabeta4 - 13 Sep 2016 - 11:38:06 - 38 of 2503 GEAR4MUSIC - G4M
Just taken a small holding. For what it's worth my thinking is below...

The company has clearly had a strong first six months, growth was 66% for the first 4 months and 73% for the first six meaning growth was 80% for the last 2.

At 70% the company would hit Edison's 2018 forecast from page 4 of the note below with sales of just over £60m.



Their profit after tax for this outcome is just over £2m which would equate to a PE of 22 for the current year.

They have given an indication of their target revenue with the warehouse plans to help expand turnover to £100m. On the same margins I have profit after tax of £4.24m which would equate to a PE of around 11.

In terms of how realistic this is their website shows the top 10 European markets with revenue of £4265m:



They're in around 20 European countries but taking this as a cautious estimate it would equate to around a 2.5% European market share. I'm sure I've read circa one quarter of UK music sales are online, I suspect Europe is slightly behind (as I'm always reading about how high the UK's data consumption compares to Europe, especially mobile) but this aside it would work out around 10% of current online music share.

Doing searches on Google for items such as 'Yamaha guitar' they appear on the front page at around the second to fourth result after the paid for ads.

I know that UK online sales are growing at 20% a year, I'm not sure of a European figure.

So in terms of price forecasts it really depends on taking a view how quickly it will hit these various figures. The eventual £100m looks undemanding as it can do this through the growth of online shopping or accelerate this by continuing to take market share. Clearly a PE of 11 for this type of business will end up too low.

If it hits the £60m this year for the PE of 22 then IMHO there should be substantial upside as that will be way too low for an online growth stock that's just posted 70% sales growth in a year (as an example I invested in BOO at a PE of 22 and it's now on a forward of 45 on sales growth guidance of 28% to 33%).

I'm cautious to say it but even after the rise of the last week if current growth continues I can see 100-200% upside here.

[davro] 23/6/2020 11:13

Excellent write up Hastings, thanks for sharing.

[hastings] 23/6/2020 11:00

Posted my write up elsewhere, but hopefully of some interest or use to others here too.

As previously flagged by the company, G4M's preliminary results for full year 2020 released this morning sounded every bit a sweet a note as investors had anticipated and perhaps much more.

Not only did it manage to drive revenues forward in an impressive manner, more noteworthy was the greatly improved performances in margins, cash generation and profit, all of which combined to have put the business in a sweet spot moving ahead.

Speaking earlier with CEO and founder Andrew Wass along with CFO Chris Scott, there was clearly a very positive and pleasing view on the numbers delivered, but perhaps equally as important, the stance that there is more to do going forward.

That mix of both confidence and a firm grounding should see the G4M business well placed as it accelerates and although the shares have this morning responded positively moving 23% to the good at £3.95p, investors eyeing continued growth could do worse than stick with this online player.

Wass sounds a very positive note on both current and future prospects where he says “we were always confident of turning it around from the previous warning and ultimately the investment we made into high margin growth has delivered”.
With a move away from volume and low margins which has clearly delivered the CEO also adds “It is very much about driving profit, its all about growing the profit and we are absolutely going to retain that growth”.

Broker N+1 Singer has been quick to upgrade on the current 2021 forecast numbers which has seen it pencil in a 100% increase in pre-tax profits to £5.1m which would provide for EPS of 20.4p.

Looking at the numbers for 2020 there is little doubt that the company has delivered and impressively, with revenue of £120m being registered, EBITDA of £6.4m achieved with the adjusted pre-tax profit coming out at £3.5m, blowing previous guidance out of the water.

Importantly cash generation such a key measure registered a significant turning point and that resulted in a reduction of net debt to £5.6m which was a marked fall on the forecast £7.5m of the previous broker note.

Wass says that issues around margins and cost efficiencies have clearly been addressed and although understandably the market has been challenging, G4M has done very well, been extremely busy and continued to benefit with a shift from the High St to online.

Looking ahead Wass sees plenty of further growth opportunities across the market space and highlights the companies bespoke digital platform which was built from scratch and is now poised for further and potentially significant progress.

“A couple of years back we began building across the digital product space which offers continued and improving customer experiences and we are now at a point of accelerating that with specific digital products that will also provide for a slick customer experience.”

This will amongst others, see the likes of its mobile website development with enhanced payment options running alongside extensive customer communication and the personalisation of tools which will also be assisted further down the line by the introduction of transformational ways customers can purchase products from G4M music websites.

Although G4M had already seen positive momentum prior to the various lockdowns, the enforced isolation has clearly had a positive effect on the business and that has continued into June as stated by the company this morning.

Wass comments “When Italy went into lockdown we quickly saw a positive effect and we were soon very busy. That surge subsequently continued, it followed a pattern and we continue to be busy”.

Whilst he says there was understandably less volume on live stands and PA systems due to the closing of event premises, other categories such as those serving podcasts and home related music have been doing incredibly well.

With its pole position in the UK, G4M also enjoys exposure across Europe with hubs to serve the various markets and there is plenty more to do and business to go for adds the CEO.
Touching on that thorny issue of a potential no deal Brexit, Wass believes G4M is better placed than many and has planned for such an event should it arise where it looks as though with two well established hubs in key countries such a scenario is largely de-risked.

Broker N+1 Singer has now pencilled in some mouth watering forecasts for the year in progress and also included 2022 numbers for the first time.

That sees it looking for revenues this year of £143.9m representing a 20% jump, rising to £151.2m next year, whilst pre-tax profits are expected to come in at £5.1m this year, moving to £5.4m next year.

Another positive take away is the anticipated reduction in net debt which is forecast to reduce to £4.1m this year to £2.1m next year as cash generation becomes an increasing and recurring feature.
The balance sheet is in any case sound enough which includes a substantial freehold property.

With some 29% of total sales now being derived from its own brands which sees increased margins for the company, G4M appears well placed to build further on this segment and there is ample opportunity to drive that forward.

And, given that its profit performance for last year was significantly stronger than expected following the implementation of both strategic commercial and operational initiatives the on-line migration could drive further upside in terms of numbers in the market as we move forward.

Despite various lockdowns easing, the strong momentum clearly appears to be continuing and in a fragmented market place with many smaller independent operators G4M having won new business no doubt at their expense is quite likely to retain customers as with other aspects of on-line business models.

N+Singer comments “On these prudent estimates, G4M trades on only 8x EV/EBITDA to Mar’21 reducing to 7x Mar’22, a 65% discount to its peers, whose EBITDA margins it now exceeds. The investment thesis has clearly improved since April, given 1) stronger and quicker profit margin uplifts, 2) positive cash generation, 3) confirmation of strong trading so far in FY21, and 4) positive forecast momentum.
At the peer group average, intrinsic value would be roughly 900p.

[saracen3] 23/6/2020 09:25

hxxp://www.gear4musicplc.com/investors/analyst-coverage/

[masurenguy] 23/6/2020 07:57

Yes, a great set of results and a very confident outlook, supported by a strong balance sheet.
The following comments were particularly significant.

"COVID-19 has brought significant changes to the retail market for musical instruments and equipment, with an accelerated shift away from physical store sales towards online. Gear4music has seen an exceptional and sustained increase in demand for its products over the first quarter to date. With the shift from high street to online consumer shopping continuing to accelerate, we remain confident that our business is appropriately configured to achieve long term profitable growth, and that we are in a strong position to build upon the excellent progress we have made during FY20.

The Group has a strong and improved year-end balance sheet, with net assets of £21.6m (FY19: £18.7m), £7.8m cash (FY19: £5.3m), and net debt of £5.5m (FY19: £7.5m) at the year-end (31 March 2019: £7.5m), including debt of £4.0m that relates to and is secured by the freehold head office revalued to £7.5m at 31 March 2020. Year-end net debt is made up of £2.1m of net debt payable under one year and £3.4m due over one year."

Look forward to further analysis from Hastings after he has spoken to management this morning.

[edmonda] 23/6/2020 07:53

#G4M gross margin up 25.9%, with EBITDA figure comfortably exceeding previous guidance of “not less than £7.0m”. £67m market cap still only represents around 50% of expected FY2021 sales revenue. Full note here:

[saracen3] 23/6/2020 07:43

No resistance on the chart till 465p. Strong buy.

[hastings] 23/6/2020 07:21

Super results this morning with a lot to warm to. But, particularly like the comment about exceptionally strong trading in April and May which has continued into June.

[hastings] 22/6/2020 14:46

Come tomorrow it is going to be interesting to see what expectations are for the year in progress, given that G4M has almost met the current guidance in 2020!

[daburd] 22/6/2020 13:51

The chart is looking interesting today. It's tried three times to get over the resistance at 307.5. Looks like it could succeed today.

[hastings] 21/6/2020 09:23

Interesting read from just last month that ties in with other industry reports.I suspect that G4M is witnessing continued strong demand too.Https://www.google.co.uk/amp/s/www.musicradar.com/amp/news/musical-instrument-sales-and-software-downloads-surge-during-coronavirus-lockdown

[masurenguy] 19/6/2020 16:09

Cheers hastings - look forward to reading a summary of your discussion.

[hastings] 19/6/2020 15:56

Good to have your company here Mas.I'm speaking with management on the day, so will post my write up for those interested.

[masurenguy] 19/6/2020 15:16

Yes, results for FY ending March 20 due on Tuesday. Took an initial position here earlier today, fortunately before this afternoons price rise.

[saracen3] 19/6/2020 14:05

Shares strong ahead of upbeat results and trading statement next week.

[hastings] 09/6/2020 22:43

New entry for me, given the recent progress which would appear to bode very well for both the near and longer term.
Forthcoming results will no doubt tell more, but a decent Broker upgrade for 2021 must surely be on the cards given that G4M has almost delivered those forecast numbers in the year recently ended.

The trend for on-line purchases which has been following other markets has clearly accelerated, so it is surely reasonable to conclude that given the undoubted recent issues for the smaller High St players, then further opportunities should arise for the company.

[glavey] 21/5/2020 04:21

Any trading day is an opportunity to add. (Or subtract.)

[ali47fish] 20/5/2020 10:38

i dont understand this retrace down- does anybody have any insight- all the recent news are good! or is this an oppotunity to add?

[saracen3] 15/5/2020 12:40

Agree completely, don't need the overheads only the customers who will come naturally

[holdyourhorses] 15/5/2020 12:03

Why would a retailer such as this one want to purchase the remains of a company with an outdated business plan. Gear4music only have one physical store in the UK, thats what makes them so strong. If you knew anything about this retail sector you would know the large number of large multi store companies that have bitten the dust over the last decade... Companies like Gear4music and Amazon snap up all remaining customers and grow bigger each year without the overheads of rent, employees and rates to keep a store open. Expect to see more of their competitors bite the dust very soon and not just in the UK...

[2breakout] 12/5/2020 23:03

good info elpirata thanks