It was around fifteen months back now that I took an opening position in G4M, the shares then sitting around the £2.80p mark.
Suffice to say and as I have commented previously, it has been a tremendous ride here on the back of a superb trading performance that saw a number of upgrades throughout the year.
Catching up again yesterday with CEO and founder Andrew Wass along with CFO Chris Scott, I had a number of questions to ask, largely relating to the way ahead and as to whether the recent and prevailing momentum can be maintained.
I’m sure that anyone holding the shares or watching from the sidelines will by now be well aware of the numbers for full year 2021 delivered earlier in the week, so I’ll just do a quick recap before moving on.
Revenue jumped more than 30% to £157.5m which saw EBITDA surging from £7.8m to £19.8m with adjusted pre-tax profits registering a 370% hike to £14.6m.
Not surprisingly, G4M moved from a net debt position of £5.5m to net cash of £2.7m rounding off what has been a transformational performance.
The shares closed yesterday a touch above £10.00p, which came after a rather muted and perhaps surprising response in the immediate aftermath of the results announcement.
The issue, or dilemma for investors as I have highlighted before was always going to be what’s next, as the 2021 results were greatly assisted by the lockdown and the inevitable driving of sales to the UK’s number one online player.
But, look beneath the obvious and there has also been significant structural change here that should provide for continued confidence in both the medium and long term prospects of the business that is very much hitting the right notes.
Speaking with Wass, he’s clearly chuffed with the performance, but importantly pleased and excited as to where the business is now at.
I’m keen to hear of more on the two acquisitions that have been made, which confirm a strategy that the CEO previously relayed to me. Wass says, “buying the two brands Premier and Eden has been very straightforward, and we already knew Premier pretty well as it is a fantastic brand with a great 99 year history. It has however lacked direction and investment over the last ten years, so we are really looking forward to bringing that in. We will modernize it a bit and focus on the high end of drum kits with also an emphasis on electronic and it will fit into our own brand category”.
Alongside the Eden brand purchase, the two additions will bolster G4M’s growing own brand portfolio which enjoys much greater margins for the company.
Wass and his team are likely to continue with the strategy of acquiring selective brands that come to their attention which can be bedded in and leverage growth in that own brand category.
“We are fairly open minded on further additions” adds Wass, “and we will of course look at another product that could add value, but there is nothing concrete to talk about yet”.
The CEO also draws attention to what he describes as the companies brilliant platform which they have invested time and money into and which is now delivering.
Although the last financial year has really shone a light on the business and brought it to the attention of a wider investment audience - save for a brief hiatus in 2019 - the company has been moving in the right direction for some time. Wass points out that five years back notable competitor Thomann was the UK number one, whilst in Europe, G4M didn’t even feature on the radar.
Fast track to the present though and not only is G4M the UK leader, it is also now number two in Europe, a heavily fragmented market that provides ample growth opportunities in what is a £4.1bn market.
That demonstrates the strategy is paying off and the potential for ongoing growth looks sound, with plenty more to play for.
Having previously established hubs on the continent in shrewd anticipation of Brexit, Wass tells me that the they have now largely reached the level of storage capacity in Germany and that, in part, has driven the decision for further hubs.
These will be in Ireland and Spain where Wass comments, “it’s a no brainer for us, as we know it works and it is relatively easy and cost effective to set up, with a quick payback”.
One of the major benefits for the company is that they can go from two-four day delivery time to just one day, a marked difference for a business that is shifting in quantity.
Expanding, Wass comments that it really is the right time for them to do this and it will help from this year into next year as the hubs come through by the end of H1.
The strategy is clearly one of maintaining the momentum and continuing to build, where having already made a positive start to the new financial year the plan is for a continuation of that.
Confidence of further progress remains high and the CEO refers to Scandinavia as being another success story and combined with the UK and the rest of Europe he wonders where G4M can be in another five years time.
Aside the recent developments, I enquire again about the forthcoming second hand offering that is due to launch next year, but which to date has largely been kept under wraps.
Clearly it is a sensitive subject given the competitive landscape, but Wass is nevertheless prepared to touch upon it. “We aren’t saying too much at present, but we are working on it with a good amount of development time allocated to this and it is on track and looking good. We are definitely excited and should be able to talk in a lot more in detail when we announce our next set of results in November”.
With the company now generating cash, Wass confirms that although they won’t say never to dividends, for the next few years at least the money will be ploughed back into the business to further drive growth.
Part of that is likely to be earmarked for further investment across its own platforms which saw G4M launching digital products in February of this year.
This provides for software downloads where Wass says that at present it is relatively small with less than 100 products. “We have recently recruited a commercial team around this product recently and it’s a product category that we are keen to push.
The intention is to build and expand this offering which enjoys decent margins. Given that G4M has made a positive start to the current financial year and with a number of positives to support the momentum and drive growth, I wonder as what the situation is like for
High St store operators given the pandemic. Wass, says that he doesn’t believe we will really know for another year until it completely unfolds, but what they do know is what their own stats tell them.
This is revealing a continuation of really good traffic momentum and that the marked shift to online has really stayed there and not gone back.
That perhaps endorses a wider held view that the shift is only going to gain further traction, where Wass also comments that some High St operators were already finding it tough before the pandemic, so for some it must have become much harder.
Looking ahead Wass sounds comfortable with where they are at and sounds upbeat on the current performance when compared with the exceptional performance of Q1 last year. “We realistically never thought that we would be able to match that and it was always going to be a case of seeing just how close we could get, but as it is, we have probably done better than we thought we would. Last time round we talked about product categories and what might or might not drive our sales coming out of lockdown and that has really played out much as we thought.”
Outdoor related products such as PA systems was one rare casualty of last year declining 23% over the year and the CEO says that although not fully back up to speed yet, the category is nevertheless proving to be a growth area already.
Overall Wass sees opportunity ahead as he says that the company has never had the depth of resource that it now enjoys. This, he defines by the moving from net debt to net cash, the £35m debt facility and management bandwidth which enables them to compete in some places. Broker N+1 Singer has upped its forecasts for the year in progress but these could prove conservative and pave the way for another upgrade.
With Adjusted pre-tax profits pencilled in at £7.8m for the full year giving EPS of 30.3p the shares currently trade on a PER of 33.
Whilst some may see that as toppy and elect to take profit or even remain on the fence it is worth noting the potential for upside.
Looking ahead to next year, the current guidance sees the shares trading on a forward PER of 24, which looks attractive in the context of where G4M currently sits, along with new products, initiatives and further penetration across Europe alongside continuing UK growth.
Commenti