Gear4Music Holdings: Strong Underlying Development
Edison | Oct 18, 2016 09:00AM ET
Gear4music Holdings PLC (LON:G4M) extraordinary European sales boost following the Brexit vote risks masking the strong underlying development of its business. We see this continuing to deliver strong double-digit revenue growth, independent of likely weakening in the UK demand environment, and led by its strategic focus on European market share. The company plans to invest in expanding the management team and establishing distribution bases in Europe, strengthening its profile for the medium term. We are raising our forecasts and our updated valuation offers upside against the share price.
Sales growth from strong to very strong
First half revenue growth of 73% showed marked acceleration from the same period a year ago (43%), with growth of 87% in the two months after the Brexit vote. Underlying KPIs were correspondingly strong, with website visitors up 27% to 5.6 million and the key conversion rate up from 1.79% to 2.38% y-o-y. Revenue growth was led by mainland Europe, where it accelerated from 137% y-o-y in the first four months to 239% in the last two. We expect international sales to continue growing relatively fast, reaching close to 50% of sales within our forecast period. This increasing exposure to the international market should help protect Gear4music (G4M) from any demand weakening in the UK in the medium term.
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