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Online guitars seller is a long-term structural winner
Thursday 09 Mar 2017 Author: James Crux

Online musical instruments retailer Gear4music (G4M:AIM) continues to hit the right notes for investors. CEO Andrew Wass is now confident of delivering full year profits marginally ahead of estimates upgraded as recently as January.

In a year-end trading update (3 Mar), Wass reported a 58% increase in total like-for-like sales to more than £56.1m for the year to 28 February 2017.

This reflected continued strong growth in the UK and Europe. Scandinavian revenue grew 186% between November 2016, when Gear4music’s Swedish distribution centre opened, and February, while Wass also confirmed Gear4music’s German hub is now operational.

We’re positive on York-headquartered Gear4music, a retail structural winner selling own-brand instruments and premium third party brands including Fender, Yamaha and Roland.

The business, whose active customer numbers increased 49% to 339,800 last year, has a huge growth opportunity in a fragmented market, while sterling weakness is presenting a significant tailwind for its exports.

Panmure Gordon’s Peter Smedley’s 600p price target has been exceeded, although the analyst will use full year results (9 May) to reflect the latest upgrade in terms of forecasts and price target. For now, Smedley forecasts growth in pre-tax profit from £600,000 to £2.4m for the year to February 2017, rising to £2.9m and £3.7m for 2018 and 2019 respectively.

At 625.5p we like the structural growth story and are prepared to look through valuation concerns. The shares trade on more than 54 times the 11.5p of earnings forecast for the new financial year. (JC)


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