We think investors have missed the growth opportunity at music and audio products supplier Focusrite (TUNE:AIM), which slumps 7.7% to 161.5p after reporting a 31% drop in first half pre-tax profit to £2.4 million.

The fall has been driven by a change in the fair value of foreign exchange contracts, which chief financial officer Jeremy Wilson says will work its way through in the second half.

Revenue is up 8.7% to £25.9 million in the six months to 29 February, with a particularly strong 29.6% rise for the rest of world region, namely Asia and Australia.

The growth is across both the group’s core brands – Focusrite and Novation – and is driven by product launches such as Circuit, mobile-first technology which fuses traditional synthesiser and launchpad technologies.

FOCUSRITE - Comparison Line Chart (Rebased to first)

Focusrite’s net cash has slipped from £4.7 million to £4 million, which is due to its decision to increase credit terms for its US distributor. Wilson says it’s a one-off action which was ‘done for the right business reasons’.

The company is launching several new products in the second half of the year and is investing in a larger Hong Kong office to drive further growth in Asia. ‘When we did this in the US three years ago it had an enormous benefit,’ claims chairman Philip Dudderidge.

Focusrite has also introduced its first e-commerce site in the UK, which enables it to sell products directly to consumers. ‘Whilst we’re not intending to go head-to-head with distributors it will be a useful additional way into the retail market. We’ll subsequently look at expanding it beyond the UK,’ says Dudderidge.

Panmure Gordon forecasts pre-tax profit of £6.7 million for the year ending August 2016, 7% lower than the previous year. It has lifted its target price from 217p to 223p, implying 38% upside.

Issue Date: 26 Apr 2016