Gear4music - Britain’s largest online musical instrument retailer - is well placed to continue generating rapid revenue growth. UK online sales appear positioned to gain further share of a musical instrument market which enjoys some steady growth. Moreover, the AIM-listed company is still in a relatively early stage of rapid Continental European expansion. With a clear cut growth strategy forged by an experienced management team, strong brand credentials and positive scores for its commercial KPIs, investment prospects look bright.
Despite being overall UK market leader with a share of around 6%, Gear4music’s domestic performance remains an important driver of company growth. UK revenue advanced by 27% in FY2018, reflecting more hits for its website and better conversion. Investment in technology and a 20% rise in products listed to 44,700 items continue to spur growth.
Continental Europe should be a major opportunity for Gear4music to sustain rapid revenue growth. Overall European market size is estimated to be £4.3bn for the top ten markets with 82% of business transacted outside the UK. Gear4music has already progressed rapidly on the continent, which in FY2018 generated 45% of group sales revenue. Further ahead, other geographic regions – including the USA – may also become more important.
Underlying demand for musical instruments continues to grow ahead of overall consumption. With a strong “hobbyist” following and widespread affordability, this trend should remain in place. More importantly, online continues to gain share from premises based retail. Gear4music is market leader in the UK online market with sales growth that continues to outstrip its category and rate of channel shift.
Gear4music trades on a 71.2x FY2019 P/E, a 1.5x EV/sales ratio and 44.7x EV/EBITDA based on our expectations for next year. None of these multiples is unusual in the context of the company’s key UK on-line peers. Additionally, Gear4music is profitable at both EBIT and EPS level and has been EBITDA positive since listing in June 2015.