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Focusrite attempts to strike the right market tune

Publication Date: 18 Jun 2018 - By ReachX Team By ReachX Team
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Equity Fundamental Equity UK Telecom & Media Consumer

Focusrite (LON: TUNE) may not be a household name, but audio professionals as well as amateur musicians often swear by its equipment when it comes to producing high quality recorded and live sound.

The company based in High Wycombe, England was founded in 1985, right in the midst of a vibrant British music scene. Industry pedigree was thus acquired long before it ultimately capitalised on its brand and listed on the London Stock Exchange’s Alternative Investment Market on 12 December, 2014.

Ever since its stock debut, the company has become a bit of market darling, not least because money managers deem it to be an income stock that develops and markets proprietary hardware and software products that stack up well against its mainstream, as well as direct boutique competitors such as Yorkville and Meridian.

General consensus is that the company benefits from a legion loyal users and is good at product development across the spectrum. That is crucial when it comes to retaining customer loyalty. Take for instance - RedNet - Focusrite’s flagship range of modular Ethernet-networked audio interfaces. In the main, it is an extremely scalable, near-zero latency audio distribution system.  

Then there is iTrack Solo, an interface for recording instruments and vocals using an Apple iPad. Featuring a Focusrite microphone pre-amplifier and an input to record directly from electric and bass guitars, iTrack Solo is compatible with iOS-based music-making app.

Banking on such products, the company’s latest financials struck a chord with market, after it said on 24 April that its first-half pre-tax profits rose by 26.8% to £5.8m from £4.6m, while group revenue rose by 21.2% to £38.8m.

EBITDA rose 30.0% to £8.0m from £6.1m, while operating profit rose 36.3% to £6.2m. And for all those dividend watchers, Focusrite hiked its dividend to 1.0p per share, up 33.3% from 0.75p per share.

Tim Carroll, Chief Executive Officer of Focusrite, attributed much of it to an “especially strong Christmas holiday season.”

The observation, while positive, also flags up an unassailable truth – the company is reliant on discretionary spending for both consumer-price products, as well as professional audio equipment.

Following on from its bumper Christmas, Focusrite has admitted that revenue and cash growth have slowed. But the company remains "confident about the outlook for the rest of 2018 and beyond.”

For now, the market is keeping faith in the £280m market cap company; as there are no forecasts for a discretionary spend busting economic downturn on the horizon.

Furthermore, the company's four established trading brands – Focusrite, Focusrite Pro, Novation and Ampify – also carry a heritage value spanning almost three decades, and that certainly counts among the boutique equipment makers.

The stock’s 52-week range has fluctuated from 250p to 494p; and in the year till date, the stock has registered an appreciation of 41.5% from 325p on 2 January to 460p on 18 June, at the time of writing. While its product portfolio continues to impress the market, the shape of the economy might well have as much of a say in Focusrite’s fortunes as its in-house innovations for its legion of fans.

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

ReachX Team

 

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