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MusicMagpie
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== Summary == musicMagpie (MMAG) provides a cost-effective and sustainable alternative to buying and selling consumer technology and physical media. Future growth is supported by the positive tailwinds of increasing awareness of sustainability issues and the growing importance of the circular economy. It has a significant growth opportunity from the rental of technology, which is expected to generate greater revenue and profit over the life of a device than an outright sale. The addition of the new recurring subscription revenue has the potential to accelerate annual revenue growth from mid- to high-single digits and significantly increase profitability (low-teens EBITDA margin from FY26). Its DCF-based valuation is 168p per share. {| class="wikitable" |+Key financials<ref>Note: *PBT, EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. ** exceptional COVID impact.</ref> !Year end !Revenue (£m) !EBITDA (£m) !PBT* (£m) !EPS* (p) !DPS (p) !EV/EBITDA (x) !P/E (x) |- |11/20** |153.4 |13.9 |9.2 |10.5 |0.0 |3.1 |4.3 |- |11/21 |145.5 |12.2 |7.9 |6.1 |0.0 |3.5 |7.4 |- |11/22e |154.7 |9.3 |1.8 |1.4 |0.0 |4.6 |32.8 |- |11/23e |166.1 |11.3 |1.4 |1.0 |0.0 |3.8 |43.7 |- |11/24e |179.9 |15.6 |5.6 |3.9 |0.0 |2.8 |11.6 |} === An evolving business model === MMAG’s business exposure has evolved quickly with a market-leading position in the UK, and an early-stage position in the United States, focused on three main product categories/divisions, Technology, Media (disc media) and Books, all with very different growth dynamics. New initiatives such as rental of smartphones and other consumer technology, offering new Apple products and the first moves to building relationships with corporates (versus consumers) suggest the addressable markets available to MMAG will continue to increase. === Forecasts: EBITDA growth expected from FY23 === The business mix, before rental income, is capable of consistent mid-single-digit revenue growth. The transition to monthly subscriptions for consumer technology should accelerate overall medium-term growth rates and profitability but compresses growth in the near-term as it moves from one-off/upfront revenue to monthly revenue recognition with a significantly higher margin. Edison forecasts 6–8% pa revenue growth in FY22–24, but the above near-term dampening effect of the transition to rental and lower ‘outright’ Technology gross profit will lead to lower FY22 EBITDA, before Edison Investment Research expects EBITDA growth to resume from FY23. At end-FY21, MMAG had a net cash position of £1.8m. Its future cash generation and net financial position will be sensitive to the phasing and extent of capital investment required to support the expansion of its rental services. === Valuation: Fair value of 168p per share === Its base case DCF-based valuation indicates a share price of 168p per share, significant upside from the current share price. Following a de-rating, MMAG’s FY22e EV/EBITDA of 4.6x represents a discount to other UK consumer-facing online companies, but the uniqueness of MMAG’s business model and category exposure means there are few direct peers with which to satisfactorily compare its valuation.
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