Investors seeking a small cap with a formidable track record and global ambitions should tune in to Focusrite (TUNE:AIM). The music and audio products specialist develops and markets hardware and software products used by amateur musicians and audio professionals to realise the high-quality production of recorded and live sound.

Although the shares have already done very well over the last few years, we believe the business could get much bigger. There’s still significant upside from new product launches and further gains in a growing global audio production market.

Becoming a big noise

With a reputation for innovation and disruption, Focusrite’s products span everything from audio interfaces and grooveboxes to music-making apps which consistently rank in the top 10 for music creation tools on Apple’s app store.

Forecast-beating full year results on 21 November revealed sales up 21.6% to £66.1m and a 33.5% surge in pre-tax profit to £9.5m.

This performance was driven by its audio recording equipment arm Focusrite as well as Novation, the brand family supplying hardware and software for creating and playing electron

Within Focusrite, the Scarlett, Clarett and RedNet ranges all grew, while in Novation, the growth of its Launchpad grid-based controllers and Launchkey keyboard controllers both accelerated.

‘This is the first report under new chief executive Tim Carroll, an industry professional with career history at US competitor Avid,’ says research group Edison. ‘The strategy is evolving to emphasise actions to grow the customer base, increase lifetime value of customers, and expand into new markets.’

Focusrite is growing everywhere from the US (its largest market) to Europe and China, supported by an e-commerce website delivering products internationally.

Stockbroker Panmure Gordon believes the high potential markets of China, Japan, rest of Asia and Latin America are particularly ripe for Focusrite to exploit further.

Amp-le firepower

Focusrite finished the year armed with £14.2m net cash, underpinning a 38% hike in the full year dividend to 2.7p.

This means the AIM-quoted company has ample balance sheet firepower to increase market share through the penetration of existing products and through expansion into adjacent products categories, both organically and through selective acquisitions.

Edison forecasts pre-tax profit to hit £10m in the year to August
2018 and £10.6m in 2019. It estimates 3p dividend next year and 3.3p in 2019. (JC)

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