29th Jun 2023 14:02
(Alliance News) - Moonpig Group PLC was one of the best-performing stocks among London's small-caps on Thursday afternoon, despite reporting a drop in annual profit, as the greetings card and gifting company reaffirmed its faith in its stable market and loyal customer base.
Shares in the firm were up 3.7% at 142.93 pence in London on Thursday afternoon.
"Moonpig seems to be good at what it does, reflected in its market leadership status. This is not a bad market to be in either, as despite a difficult economic backdrop, most people still like to send a card to mark a milestone," said Russ Mould, investment director at AJ Bell.
London-based Moonpig said pretax profit for the financial year that ended April 30 was GBP34.9 million, down 13% from GBP40.0 million the previous year. This came as its selling and administrative expenses increased 29% to GBP132.5 million from GBP102.6 million, and finance costs increased 51% to GBP13.6 million from GBP9.0 million.
More positively, revenue increased by 5.2% to GBP320.1 million from GBP304.3 million.
Adjusted earnings before interest, tax, depreciation and amortisation reached GBP84.2 million, up 12% from 74.9 million. Moonpig said this was in line with expectations and due to its business model's "inherent flexibility", and despite a difficult economic climate during and after October last year. This is when a disastrously unfunded UK government budget - later mostly reversed - caused interest rates to spike.
Moonpig credited the increase in core earnings to a stable greeting cards market and loyal customer cohorts, in accordance with its focus on delivering lifetime value for customers who therefore will drive recurring annual revenue.
Existing customers generated 88.6% of revenue for the Moonpig and Greetz brands, up from 86.5% the year before.
"Today's results demonstrate the resilience of our business model which is rooted in the stability of the greeting cards market and our unique use of data to drive customer loyalty. We have high profitability, strong cash generation, and inherent flexibility that allows us to respond rapidly to a dynamic macroeconomic environment," commented Chief Executive Officer Nickyl Raithatha.
He added: "We have continued to extend our market leadership in online cards and we expect to return to growth during the year ahead, underpinned by our continued investments in our technology, marketing and operational capabilities. As the clear online leader in greetings cards, Moonpig Group is well positioned to benefit from the long-term structural market shift to online."
Analysts at Davy Research said earnings estimates for Moonpig appeared to have "troughed", with the company expecting to return to organic growth, weighted towards the second half of the year.
"Medium-term guidance is for year-on-year revenue growth in the 'mid-teens', although expectations are lower in financial 2024. Conversely, a focus on the higher-margin greeting card product means that financial 2024 adjusted Ebitda sits above the medium-term target range of 25% to 26%," Davy Research said.
AJ Bell's Mould said that where things could be "more difficult" for Moonpig moving forward is selling extra little gifts alongside its cards at the checkout stage.
"The idea of offering gift experiences within a card looks like a smart innovation which may appeal to the time-poor trying to stay on top of friends' and families' birthdays and other special occasions," he said, but cautioned that if households are really watching their pennies, they may decide they can do without a box of chocolates or soft toy on top.
"Moonpig has proved up the idiom 'when pigs fly' by singularly failing to get off the ground since its 2021 [initial public offering]. To turn things around it needs to reduce its debt and demonstrate it can deliver growth in a difficult market," Mould concluded.
Moonpig listed in London in February 2021 at 350p per share, so its current price is less than half of that.
By Heather Rydings, Alliance News senior economics reporter
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