Moonpig's profits fall despite sales growth

Investors marked up Moonpig’s (MOON) shares by 4 per cent after the online card and gift retailer delivered on revenue and cash profit expectations, but higher prices and a new sales stream couldn’t prevent a slide in earnings.

Revenue growth was driven by £42mn of sales in the new ‘experiences’ segment, with card customers now also able to buy adventures ranging from clay pigeon shooting to glamping after Moonpig acquired gift experiences platform Buyagift last summer for £124mn. Davy analyst Alex Short calls the move “strategic and logical, but unfortunately timed”.

Traditional sales reversed, with card and gifting sales down by 1 per cent and 17 per cent, respectively. The company has been impacted by consumers trading down to cheaper options. Even though higher card prices pushed the average order value at Moonpig and Greetz up by 7.6 per cent, orders fell by 14.9 per cent.

At the bottom of the income statement, the fall in reported profits was driven by a £5.6mn increase in amortisation due to the Buyagift purchase and a £4.6mn rise in finance costs.

Deleveraging remains a key investor concern. Some progress was made here, with net debt against adjusted cash profits coming in at 1.97 times, an improvement from the 2.45 times last October.

Stifel analysts said that “higher sales growth [in 2024] with a continued reduction in net debt from another six months of cash generation should act as a turning point for the business and a re-rating for the stock”.

We aren’t quite that bullish, but with the shares rated at a consensus 12 times forward earnings, according to FactSet, half as cheap as the historic average, and with management guiding for growth across all brands in the second half of 2024 there could potentially be some intriguing upside ahead. Hold.

Last IC View: Hold, 132p, 07 Dec 2022