Online musical instruments retailer Gear4Music (LON: G4M) has put in place measures to help it improve its performance, but the benefits will take time to show through. It should be enough to return the business to profit this year, though.
In the year to March 2023, revenues improved from £147.6m to £152m with all the growth coming from Europe. The business made an underlying pre-tax loss of £200,000, compared with a £5.1m profit the previous year.
A reduction in inventories helped to cut net debt to £14.5m. Even with growing revenues, the net debt figure should continue to fall.
AIM-quoted Gear4Music plans to build its own-brand sales, which are currently around one-quarter of the group total, and this will help to improve margins. The Premier drums range has been redesigned and a new brand called Vision will compete with third party Amazon sellers.
The company has moved into the second hand market with a new platform. Gear4Music will offer an instant price and collect the instrument, then list it for sale on the website. This has launched in the UK and will be launched in other European countries.
The new AV.com consumer electronics platform is being rolled out to other European countries. It is still early days for this platform, but it is a large potential market.
There are concerns about discretionary spending, so the recovery could be slow. Singer forecasts a 2023-24 pre-tax profit of £1.1m, but there is a long way to go to get near to the bumper profit of £14.8m in 2020-21. The broker believes that Gear4Music has the capacity for revenues of up to £400m and EBITDA of £30m.
The share price fell to 95.5p, which is not far above the all-time low. The prospective multiple is 27, falling to ten the following year. Once there is more confidence in the recovery, the share price should start to rise.
