Good morning, it's Paul & Jack here with the SCVR for Thursday.

Agenda -

Gear4music Holdings (LON:G4M) - yet another increase in guidance for FY 03/2021 - this share looks cheap at 725p, expect a decent rise today.

Macfarlane (LON:MACF) - resilient results from 2020. Big increase in divis, and net debt paid off. Looks good value to me.

Ricardo (LON:RCDO) - improving conditions and reinstated dividend from this engineering consultancy (this section by JAck)


Gear4music Holdings (LON:G4M)

(I hold)

725p - mkt cap £152m

Trading Update

Gear4music (Holdings) plc ("Gear4music" or "the Group"), the largest UK based online retailer of musical instruments and music equipment, today announces the following trading update.

This is the latest in a long line of above expectations trading updates.

We are pleased to report that Group trading performance in the 2021 calendar year to date [Paul: FY 03/2021] continues to be strong. Both our UK and European Operations have performed well post Brexit, helping to drive revenue growth and support margins that have exceeded our previous expectations.
The Board now expects EBITDA for the 12 months ending 31 March 2021 ("FY21") will be not less than £18.2m, up from the guidance provided on 14 January 2021 of not less than £16.5m.

That’s a useful increase in forecast EBITDA, especially coming near the end of the financial year. G4M seems to be going from strength to strength.

Forecasts - I can’t see any updated broker notes yet, but using a previous note from N+1 Singer, I can manually update it to adj PBT of £13.1m, or 50p EPS.

That means the PER is only 14.5 - clearly the wrong price. It should be on a PER of 20-30 in my view, implying a share price of 1000-1500p - good upside from 725p currently.

My opinion - I think broker forecasts here look way too cautious. The assumption seems to be that G4M has had a one-off boost from lockdown. That’s probably true to some extent, but bear in mind that once lockdown lifts, then live music should return with a vengeance. That means customers wanting to buy new equipment. Therefore some categories such as speakers, might see a boom, even if others fall back a bit.

I really can’t see EPS falling from 50p FY 03/2021 to 27.73p next year…

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