19th Jun 2023 11:49
(Alliance News) - Shore Capital lowered its annual revenue forecast for musicMagpie PLC on Monday but kept its adjusted earnings before interest, tax, depreciation and amortization outlook unchanged amid improving margin figures for the firm.
"With a trend of lower volumes but at a higher margin, we lower our revenue forecasts, but our adjusted Ebitda figures remain unchanged," Shore Capital analysts Katie Cousins and Clive Black said.
For financial 2023, Shore sees revenue at GBP140.6 million and Ebitda at GBP8.7 million. This compares to revenue of GBP145.3 million and Ebitda of GBP6.5 million in financial 2022.
On Monday, the used technology reseller said, following a challenging start to the first half of its financial year, it delivered Ebitda of GBP2.0 million in its second quarter. This was up 42% on the year prior.
In the six months ended May 31, musicMagpie said Ebitda was GBP2.8 million, up 7.7% year-on-year and in-line with the company's expectations.
Shore said it was "pleased" to see musicMagpie's adjusted Ebitda up 7.7% year-on-year, in what is typically a quieter period for the firm.
"The first two months of the first half of financial 2023 were strongly impacted by UK postal strikes and especially low consumer confidence. However, we were pleased to see trade improving from February and in particular a strong second quarter performance, leaving a good run rate as musicMagpie enters the second half of the year," the broker said.
"musicMagpie has focused on driving margin performance during the first half, with good cost management and a higher proportion of sales driven through the musicMagpie store. Additionally, progress within the rental model, which suppresses near-term revenue but has the potential to achieve a greater profit contribution versus an outright sales, has continued."
musicMagpie's gross margin improved 3.1 percentage points year-on-year. The firm said this improvement was driven by a combination of a higher proportion of product sourced directly from consumers; an increase in the proportion of sales made through the musicMagpie store; and the increasing contribution from rental subscriptions.
Shore said, with current trends, it believes this margin improvement "could be sustained."
Looking forward, musicMagpie said it is confident of achieving its full-year expectations, but added it is remaining "cognisant" of the current "tough" consumer market. It did not specify its expectations, however.
Shore noted that the company's trading is typically second half weighted due to the Black Friday sales period, and said it was "pleased" to see the good run rate as the firm enters the third quarter. However, Shore cautioned that musicMagpie's forecasts "do not leave much room for any unexpected trading disruption".
musicMagpie is a Shore Capital house stock. Shares in the firm were up 1.4% at 18.00 pence on Monday morning in London. The stock is down 61% over the past 12 months, however.
By Heather Rydings, Alliance News senior economics reporter
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