Moonpig (LON: MNPG) got off to an impressive start in its first week on the London market. The placing price was 350p, which was at the top of the indicated range, and the share price ended the week at 423.85p.
The company raised £20m in the placing and £9m went on the costs of flotation. The selling shareholders raised £454.8m in the initial placing. An additional 14 million shares were sold by shareholders as part of the over-allotment option.
Moonpig is the market leader in online cards in the UK. There is a continuing trend from offline to online cards and gifting. Lockdowns have boosted the demand for online card services. The growth opportunity is card-attached gifting. Investment in IT will help improve information and the increased attachment of gifts.
Moonpig nearly doubled its revenues from £87.9m to £173.1m between 2017-18 and 2019-20. Gross margins declined but operating profit margin improvement more than offset that. Operating profit rose from £15.5m to £33.1m.
The business has been consistently cash generative, which is why it did not raise a significant amount of cash in the flotation.
Broker Peel Hunt is more optimistic than the company’s guidance. It forecasts 2020-21 pre-tax profit of £55.5m, which is slightly higher than the guidance.
The difference is greater for 2022 when a reduction in revenues and profit is expected. Peel Hunt is going for a pre-tax profit of £38.1m, compared with guidance of £28m.
Peel Hunt issued the forecasts prior to trading commencing in the shares. It said that the share price target should be 450p.
Moonpig has a strong base in the UK and has made an acquisition in the Netherlands. Greetz is estimated to have a 65% share of the Netherlands online cards market. This market is growing at more than 7% a year.
International expansion is set to be in the US and Australia. There are around £4m of revenues already generated in these markets.
The strong base in the UK and the Netherlands and the potential for international expansion explain what is a relatively high rating compared to many other retailers – although not to some online retailers. The 2021-22 prospective rating is more than 45, falling to 33 the following year.
There does not appear to be much more to go for in the short-term, but the long-term prospects are excellent.