Gear4music (Holdings) plc
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Description
Gear4music (G4M) is the leading UK online retailer of musical instruments and music equipment. Based in York, it has also established operating bases in Sweden and Germany to spearhead its expansion into mainland Europe. It operates 20 localised country websites in 15 languages with 9 currencies.
Our view
G4M has built a flexible, scalable, low cost business model, including a European distribution infrastructure and local buying capabilities, which also mitigate Brexit risks. G4M benefits from several barriers to entry. The most significant of these - and a source of sustainable competitive advantage - is its proprietary and bespoke e-commerce platform, developed over a 14-year period. Its expanding product offer now extends to over 55,000 lines, including its highly profitable own brand ranges. G4M has significant growth potential from market share expansion in a highly fragmented product market undergoing a structural shift into the online channel.
Financial Summary
Year end: March (£m unless shown)
| 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|
| Revenue | 118.2 | 120.3 | 144.6 | 151.3 | 167.1 |
| Adj EBITDA | 2.3 | 7.8 | 11.5 | 11.6 | 13.1 |
| Fully Adj PBT | -0.6 | 3.1 | 6.8 | 6.7 | 7.9 |
| Fully Adj EPS (p) | -0.8 | 12.2 | 26.8 | 26.4 | 31.2 |
Profit & Loss
Year end: March (£m unless shown)
| 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|
| Revenue | 118.2 | 120.3 | 144.6 | 151.3 | 167.1 |
| Adj EBITDA | 2.3 | 7.8 | 11.5 | 11.6 | 13.1 |
| Adj EBIT | 1.2 | 5.6 | 9.5 | 9.6 | 11.0 |
| Reported PBT | (0.6) | 3.1 | 6.8 | 6.7 | 7.9 |
| Fully Adj PBT | (0.6) | 3.1 | 6.8 | 6.7 | 7.9 |
| NOPAT | (0.4) | 4.7 | 6.3 | 6.1 | 7.0 |
| Reported EPS (p) | (0.8) | 12.2 | 26.8 | 26.4 | 31.1 |
| Fully Adj EPS (p) | (0.8) | 12.2 | 26.8 | 26.4 | 31.2 |
| Dividend per share (p) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
Cash Flow & Balance Sheet
Year end: March (£m unless shown)
| 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|
| Operating cash flow | 2.0 | 7.2 | 10.4 | 11.0 | 12.3 |
| Free Cash flow | (2.3) | 3.3 | 4.3 | 4.8 | 5.7 |
| FCF per share (p) | (10.9) | 15.9 | 20.7 | 23.0 | 27.4 |
| Acquisitions | (0.4) | (0.4) | (0.2) | 0.0 | 0.0 |
| Disposals | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Shares issued | 0.1 | 0.0 | 0.0 | 0.0 | 0.0 |
| Net cash flow | (2.5) | 2.0 | 3.0 | 3.8 | 4.7 |
| Overdrafts / borrowings | (12.8) | (13.4) | (11.9) | (9.4) | (5.9) |
| Cash & equivalents | 5.3 | 7.8 | 9.4 | 10.7 | 11.9 |
| Net (Debt)/Cash | (7.5) | (5.5) | (2.5) | 1.3 | 6.0 |
Nav & Returns
Year end: March (£m unless shown)
| 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|
| Net asset value | 18.7 | 21.6 | 26.0 | 30.6 | 36.1 |
| NAV/share (p) | 89.3 | 103.2 | 124.0 | 145.7 | 172.3 |
| Net Tangible Asset Value | 10.8 | 20.2 | 19.1 | 18.2 | 17.1 |
| NTAV/share (p) | 51.4 | 96.4 | 91.3 | 86.6 | 81.7 |
| Average equity | 18.8 | 20.2 | 24.5 | 30.1 | 36.2 |
| Post-tax ROE (%) | 16.4% | 33.6% | 27.2% | 0.0% | 0.0% |
Metrics
Year end: March (£m unless shown)
| 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|
| Revenue growth | 47.5% | 1.8% | 20.1% | 4.7% | 10.4% |
| Adj EBITDA growth | (34.0%) | 239.8% | 48.3% | 0.8% | 12.8% |
| Adj EBIT growth | (55.8%) | 352.9% | 67.9% | 1.8% | 14.8% |
| Adj PBT growth | (140.6%) | (605.4%) | 120.3% | (1.8%) | 17.9% |
| Adj EPS growth | (111.7%) | (1670.4%) | 119.4% | (1.8%) | 18.2% |
| Dividend growth | N/A | N/A | N/A | N/A | N/A |
| Adj EBIT margins | 1.1% | 4.7% | 6.5% | 6.4% | 6.6% |
Valuation
Year end: March (£m unless shown)
| 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|
| EV/Sales (x) | 1.0 | 1.0 | 0.9 | 0.8 | 0.7 |
| EV/EBITDA (x) | 54.3 | 16.0 | 10.8 | 10.7 | 9.5 |
| EV/NOPAT (x) | (303.7) | 26.6 | 19.6 | 20.2 | 17.7 |
| PER (x) | N/A | 46.2 | 21.0 | 21.4 | 18.1 |
| Dividend yield | N/A | N/A | N/A | N/A | N/A |
| FCF yield | (1.9%) | 2.8% | 3.7% | 4.1% | 4.9% |