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Summary
- The British Government declared a package of £30 billion to overcome the unemployment crisis in the UK.
- Focusrite acquired Martin Audio in December 2020.
- Focusrite deferred interim dividend for HY2020.
- Victoria witnessed a drop in sales during the lock-down; however, recovery in sales seen post ease in lock-down.
- Victoria PLC expects steady demand for home decor products as people spend more time at home.
Given the above market conditions, we will review two consumer discretionary stocks - Focusrite PLC (LON:TUNE) and Victoria PLC (LON:VCP). The share price of TUNE was up by 1.87 percent whereas VCP was down by 1.98 percent (as on 9 July 2020, before the market close at 9.25 AM GMT+1). Let’s discuss the financial and operational updates in detail.
Focusrite PLC (LON:TUNE) – Interim dividend postponed due to the pandemic
Focusrite is involved in the manufacturing and marketing of audio and electronic music products. The Company has six brands, including Focusrite, Focusrite Pro, Novation, ADAM Audio, Martin Audio, and Amplify. Focusrite is headquartered in the UK and listed on the FTSE AIM 100 Index.
HY2020 Interim results (ended 29 February 2020) as reported on 12 May 2020
The revenue at constant currency was up by 25.3 percent year on year to £49.3 million. The EBITDA increased by 2.9 percent to £9.1 million, but then the adjusted operating profit declined by 12 percent to £6.4 million. The Company generated an underlying free cash flow of £4.4 million. At the end of HY20, the net debt was £19.9 million.
In 2019, the Company acquired two brands ADAM Audio and Martin Audio. Martin Audio manufactures and distributes sound systems; the Company was acquired for £39.6 million in December 2019. Focusrite took a five-year loan facility of total £40.0 million from HSBC and NatWest bank to buy Martin Audio. ADAM Audio was acquired for £16.1 million in July 2019.
Product Revenue Breakup
The Focusrite division revenue was down to £25.6 million in HY20 from £26.3 million in HY19, which was mainly due to prior shipment of Scarlett interface products at the end of the previous financial year. However, the number of end-user registrations increased. The Focusrite Pro sales were down to £1.9 million, from £2.6 million a year ago; the Red products under the Focusrite Pro brand are nearing the end of their lifecycle. The sales of Novation, including Amplify, was £9.9 million, up by 1 percent year on year. The Novation brand launched new Launchkeys and Launchpads whereas Amplify launched music creation software Amplify Studio for Mac and Windows. The ADAM Audio that was bought in July 2019 generated sales of £7.0 million, the brand sells studio monitors. Martin Audio reported revenue of £4.5 million; the division provides the sound solution for live concerts.
Revenue Growth and Segment Revenue by Geography
(Source: Company Website)
Share Price Performance
1-Year Chart as on July-9-2020, before the market close (Source: EODHD/Others, Thomson Reuters)
Focusrite PLC’s shares were trading at GBX 635.00 per share and remained flat as on 9 July 2020, before the market close at 3.50 PM GMT+1. Stock 52-week High and Low were GBX 750.00 and GBX 335.00, respectively. The Company had a market capitalization of £369.01 million.
Business Outlook
Following the acquisition of ADAM Audio, the Company plans to discontinue distribution of third-party studio monitors from August 2020. Martin Audio, which provides sound solutions for live and tour concert witnessed a slowdown in business due to lock-down; however, the brand has a strong product roadmap. Focusrite made a base case assumption to analyze the impact of COVID-19 on the business where it assumed the revenue to decline by 30 percent for six months starting May 2020, despite the shortfall in sales it believes that it would reduce the net debt over the next twelve months.
Victoria PLC (LON:VCP) – Recovery in sales seen as economies re-open
Victoria PLC is a UK based company that manufactures and distributes home decor and flooring products. The Company designs and sells carpets, tiles, artificial grass and flooring products and has operations in the UK, Europe and Australia. The Company has many brands under the portfolio, some of which include Abingdon flooring, Carpet line direct, Duralay and Ezifloor. The Company is listed on the FTSE AIM 100 Index.
Trading Update as reported on 25 June 2020
Following the government-imposed shutdown of the manufacturing facilities and shops across the UK and Europe, the revenue was severely impacted in March and April. The manufacturing facility in Australia continued operations, which contributes close to 14 percent of the total revenue. The sales started to recover from mid-May post ease in lock-down. As on reported date, all the manufacturing facilities of the Company remain operational. The Company has achieved 85 percent sales of the pre-Covid budget set by the management in the last three weeks. The sales from the UK region is expected to further contribute to the total sales, as the UK was the recent market to re-open among the markets where the Company operates. The divisional revenue improved after the restart of operation as the UK & Europe Soft Flooring revenue was up by 70 percent whereas UK & Europe Ceramic Tiles and Australia income improved by 90 percent and 105 percent, respectively. The uptick in demand was seen in Germany and Austria after the markets re-opened and demand remained stable in markets which did not close. The supply chain at the manufacturing facilities remained steady as the facilities source most of the raw materials locally
Balance sheet headroom
As on the end of March 2020, the Company had liquidity of over £200 million including cash and undrawn credit facility; the net debt is close to £370 million. The Company issued bonds worth €500 million in July 2019 and January 2020 that are not due to mature before July 2024. The Company did not seek any aid under government schemes.
Financial Performance H1 FY20
(Source: Company Website)
Share Price Performance
1-Year Chart as on July-9-2020, before the market close (Source: EODHD/Others, Thomson Reuters)
Victoria PLC’s shares were down by 3.96 percent and trading at GBX 242.50 per share (as on 9 July 2020, before the market close at 3.50 PM GMT+1). Stock 52-week High and Low were GBX 550.00 and GBX 136.16, respectively. The Company had a market capitalization of £316.63 million.
Business Outlook
The Company expects to have an advantage from the geographic split of the customers and the manufacturing facility. The Company is confident to cater to the demand as per need basis. The Company is optimistic about the liquidity position and have no intention to raise any capital shortly for operating activities. The Company is confident about the demand for the home decor business that contributes 93 percent of the total revenue. Recently, consumers are spending more time at home that would encourage the need to decorate their homes. The Company would cater to the demand as per need basis.
