AGM Update – Growth on Cue
Gear4music plc, the largest UK based retailer of musical instruments and music equipment, issued a brief update this morning ahead of its AGM, which is scheduled today for 3pm. Despite what is considered to be a competitive retail environment, revenue growth continues to be strong. Moreover, the projects to relocate the Swedish distribution centre and upgrade UK distribution are on track. The company reaffirmed guidance.In our view, Gear4music - Britain’s largest online musical instrument retailer - is well placed to continue generating rapid revenue growth. UK online sales appear positioned to gain further share of a musical instrument market that enjoys some steady growth.
Furthermore, while market conditions are cited as competitive it should be noted that UK retail sales trends held firm in recent months. According to ONS data retail sales volumes in the 3 months to June 2018 increased by 2.8% from a year earlier while value increased by 5.1%. Additionally, non-food online sales, which plays to Gear4music’s strengths, rose by an impressive 20.8% in the year to June.
Equity Development’s full year forecasts are for FY2019 (February year-end) revenue to increase by 30.1% to £104.2m, EBIT margins to increase from 2.4% to 2.6% and EPS to rise impressively from 6.7p to 10.1p.
If our assessment is correct, the shares trade on a 65x prospective P/E ratio that is not unusually high by the standards of Gear4music’s online peers. The implied 1.8x EV/sales ratio represents a discount to this group.
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