Gear4music (holdings) Share Discussion Threads

[deltrotter] 17/1/2018 08:48

Peel Hunt initiate with a £10 target....

[rathlindri] 17/1/2018 08:47

Some welcome activity this morning

[suetballs] 12/1/2018 07:31

Yes - banking a few profits hpefully and nothing more worrying?
Suet

[ali47fish] 12/1/2018 07:21

old mutual reduces

[fabius1] 10/1/2018 10:23

ignoble

Thank you. A subject close to my heart away from the hurly burly. Where to begin...

[ignoble] 10/1/2018 01:49

Enjoyed reading your thoughts , Fab

Very difficult business retailing quality instruments these days.
Gibson and Fender sales have been in decline for some years .
Music has changed , I grew up in an age where we all had guitar heroes and we tried to play like them.
Not too many modern bands playing instruments these days.
Rather sad ....

[fabius1] 09/1/2018 23:18

Walter. Funny thing but I was on their website today and spoke with the sales team as a potential customer. I have decided to buy direct from Yamaha for a number of reasons, the most important being that if I visit their store in London I can chose my own instrument from stock which will then be setup and strung to my taste, none of which is available on a 'pile it high' internet site and what is more, at a competitive price with full backup. It is worth noting that there is a wider read across for the discerning concerning some high street operations in certain areas of the retail sector. Back to business. I read your analysis. I would say you have it more or less covered. The music business is littered with a history of boom and bust. Thomann are big in Germany and with good reason. They are a better quality outfit than Gear4music but also have their own budget brands. Musicstore, also in Germany, are similar and second in line. I believe they are both privately owned. Musicstore took over Digital Village 24/7 in the UK a few years ago who were really struggling and promptly closed down every branch except for the main one in Romford. Net result was that they scooped the pool for a large chunk of trade. They all more or less play the same game, the game that all retail internet outlets tend to play which is wafer thin margins in the main and minimal stock levels based on the 'Just in Time' philosophy which of course places greater costs on the main suppliers in exchange for tighter profit margins. Amazon of course have perfected the art and are the blueprint of blueprints but the difference is they sell everything under the sun. The main driver for the music retail business has been cheap but relatively good quality instruments from the Far East, notably China to the extent that household brands like Fender and Gibson now have their budget brands manufactured by Far Eastern outfits to high tolerances. Precision manufacturing is the name of the game but you have to ask yourself how many Fender & Gibson guitar copies does the world need or want for that matter. All part of the current deflationary cycle of consumerism from East to West but at what cost and for how long. If that dam breaks then Gear4Music will probably be first in line.

[walbrock82] 06/1/2018 09:52

Nice points made.

I read on the Stockopedia blog that Paul Scott talked about economies of scale.

In addition of what I have written, I think G4M wants to emulate what Rightmove did in the property sector if so they want to be the market leader in online musical instruments.

But as Graham eluded in his coverage that G4M valuation is priced in for the next three years.

I would put G4M on my watchlist until they release their final results.

Investors should begin to look for improvement in gross margin and operating margin for signs of growing competitiveness as they eat more of the cake.

The logic here is if G4M takes more market share they should some leverage in negotiating pricing and take advantage of any bulk discount coming their way.

[hydrus] 05/1/2018 14:17

Anyway good discussion - overall I'm content to hold what I have left and see how they get on. I understand why newcomers might be nervous entering at this point though. I'm hopeful that they will surprise on the upside on both revenue and profitability in the next financial year, which starts shortly.

[hydrus] 05/1/2018 14:13

Hi Walbrock 'Sales growth is impressive but the rate of growth is lower than last year 55%, this is because of the business getting larger.'My reading of it is that UK growth is lower because it's relatively mature (although still impressive at 25%), whilst RoW/Europe is now ramping up and offers a much larger market to go for. I don't think the size of the business will impact growth outside the UK for quite a while. Interesting points on the website. Sounds like there is room for improvement. No doubt some jitters today which is to be expected I guess.

[dixi] 05/1/2018 13:42

G4M advertise in 'Guitar' magazine - but there are others too - I personally think that the G4M website is not the best - guitarguitar.co.uk is a much more rewarding site to navigate. Then there is also GAK and Thomann along with Andertons amongst others - all big advertisers to attract business. But I guess G4M are after rapid expansion maybe - but talking to the guys in PMT (also online) it is bit of a cut-throat business. I can remember the days when music shops seemed to come and go on a regular basis, some of them quite big operators. Maybe there will be some consolidation?

[walbrock82] 05/1/2018 13:11

After reading their trading update, I conclude the following:

Sales growth is impressive but the rate of growth is lower than last year 55%, this is because of the business getting larger.

But early investors of G4M have made some great gains, but I feel the next two to three years will be testing period for the online seller.

There is one nagging concern that I have with G4M and that is the lack of profitability.
Brokers forecast for 2018 is £2.11m in net profit, rising to £3.69m by 2020.
If that’s the case, then expect the share price to fall to £4 per share.

However, if you are a believer that earnings will smash expectations. And assuming it makes £10m by 2020.
Then the share price outlook is completely different. Expect the shares to trade between £22.50 and £32.50 per share.
To find out why a difference between £3.69m profit and £10m leads to such a high variation find out here:

[cbootle] 05/1/2018 12:23

Interesting rant, very good points toffeeman. However, I suspect they do read BBs - they are active in promoting the fact that they are on AIM - they have a link on their front page to their investor website. They tell us in advance when to expect trading updates etc. So I suspect the company directors are very keen to see the value of their own shares rise. No reason to think they are not lurking here.

They have a mailing list, but as you say, untargeted. Just checked my emails and have them fortnightly since 2010 ;-)

[mrx001] 05/1/2018 11:36

If only we knew the answer to that! Looking at the trades there would appear to have been a lot of buyers relative to sellers. I'm left thinking there must be a large seller somewhere, probably appear at close of play.

[caterham88] 05/1/2018 11:13

Interesting that a positive trading update, confirming bullish expectations, has not resulted in any change of share price by 11.00am. Mr Market's expectations were obviously totally aligned to the update, or is there a positive correction due as news spreads?

[toffeeman] 05/1/2018 10:23

I think market share is pretty meaningless.

What matters is the number and growth of active customers. So they key here is getting people to the website, the more visitors, the more conversions and the more conversions the more repeat sales (it's called Double Jeopardy in marketing) - the current numbers are good but not stupendous. Why for example are they nowhere on hxxp://www.mma-online.org.uk/ or hxxps://www.musicteachers.co.uk/

Then they need to implement some fairly low level AI to increase the purchase rate of existing (individual) customers e.g. a customer who purchased a recorder needs an email x months later with a link to clarinets.

They also need to gather better data on family size age of children and their musical interests for better targetting.

If the average order size is c. £125 they can spend a bit on data fusion.

Rant over - pointless as the company don't read BBs!

[mrx001] 05/1/2018 10:08

Extrader, you are of course correct that there is no mention of margins, Stocko advises the margin as 2.67 but then the ticket items are of larger value. I'm still going on growing online sales and expecting margin to improve as they gain market share.

[slopsjon2] 05/1/2018 09:47

Edison Note

Gear4music (G4M) has fulfilled the strong expectations of its four-month
Christmas trading period. Revenue growth of 42% is consistent with H1
and is in line with expectations, both in the UK and faster growing
international markets. This means that the online model continues to take
share, achieving growth far ahead of consumer fundamentals and building
on its market-leading position. We retain our forecast and reiterate our
valuation stance, which sees upside based on the rate of development of
international markets.

[extrader] 05/1/2018 09:27

Hi MrX001,

I think you're misreading 'turnover' growth as 'profits'.

The RNS is silent on margins, which were already a measly 3% or so.

Maybe G4M is 'investing margin in its business proposition'....

Maybe.

ATB

[mrx001] 05/1/2018 09:14

Results looked good to me, with European and ROW profits showing good returns from the investment that has taken place there. Seems a lot of people are taking profits which has moved the price down. I'm hoping this is only short term and have consequently doubled my holding. As always time will tell. :o)

[bamboo2] 05/1/2018 08:54

Hydrus/Adam, interesting views.

I was only in for a trade on the potential chart pattern, but it looked unlikely to get confirmed/validated in the near term, so took a small loss [trading costs].

gla

[rp19] 05/1/2018 08:51

This year of significant investment has been well flagged as putting the building blocks in place for future substantial growth. Clearly they need to deliver it, but I am happy to hold.

[hydrus] 05/1/2018 08:51

It's a volatile share. I'm not too bothered about next few hours/days or months. I just think the CEO is impressive, very focussed and the growth demonstrates that they are nailing it. I've taken profits before having held from much lower levels but I'll keep the rest now as reasonably confident this company will do well. I guess it would suffer a bit if consumers cut back but long term should continue to expand.