Shares in online musical instruments group Gear4music (G4M:AIM) hit one-year highs on Tuesday, bid up 23% to 395p after full-year results showed the business returning to positive growth.
Founder Andrew Wass commented, ‘the improvements we have made during FY20, and the exceptionally strong trading we have experienced during the lockdown period, mean we are financially stronger and better placed than ever to make the most of future growth opportunities within our market.’
The strong return to profitability was welcome news and expunges all doubts the company couldn’t achieve the operational improvements it promised last year, while continuing on the growth path, which is always refreshing to report.
HITTING THE RIGHT NOTES
Revenues grew 9% to £120 million with the UK contributing 5% to £62 million while Europe is now almost as large, growing 15% to £58.5 million. Own branded sales accounted for 29% of revenues, up from 26% last year. These revenues were generated from just 6% of the total product range.
Gross profits were 16% higher at £31.2 million as the margin improved over 3% to almost 26%, driven by the group’s focus on marketing high margin products. A tight rein on administrative expenses improved operating profits to £4 million compared with a small loss last year.
Better management of inventory and working capital resulted in a significant improvement in cash generated from operations, which was almost three-times higher at £7.5 million. Net debt was £5.5 million of which £4 million is secured on head office freehold, valued at £7.5 million.
MORE TO COME
While the management team was coy about quantifying the benefits Gear4music has experienced through lockdown, it did indicate the company has seen an ‘exceptional and sustained increase in demand during the first-quarter.’
Operational improvements, strengthened management teams, increased storage space and upgraded software systems all give the business a strong footing to allow ‘strong growth in the short and medium term.’
Management believe existing capacity is enough to support this growth without the need for any expansionary capital expenditures. Increased cash flow will instead be directed towards the development team, in order to improve the customer experience.
Analysts at N+1 Singer have doubled their forecasts for pre-tax profit and earnings per share to £5.1 million and 20.4 pence per share, respectively.
