Moonpig shines ahead of Christmas season

The share price of Moonpig (MOON) received a leg-up in October when broker Jefferies said that sales prospects at the online greeting card and gifting platform were improving. With Christmas in sight, that’s hardly surprising, but the company’s latest interim figures suggest the broker wasn’t wide of the mark. The 6.5 per cent top-line increase through to October will please analysts given that sales are weighted towards the second half of the year, but there was a mixed showing, with the core Moonpig service outshining the Greetz brand in the Netherlands.

Gross profits were 15.3 per cent to the good at £89mn on a 440 basis point increase in the underlying margin. The group has not been burdened by significant input cost inflation and the margin benefited from the insourcing of the UK fulfilment function at its Tamworth facility.

Reported profits, although well up on the 2022 comparator, were held in check by higher depreciation charges on capital expenditure on new operational facilities, while finance costs on the unhedged element of the group’s bank borrowings were also on the rise.

Customer retention remains strong with 91 per cent of Moonpig and Greetz revenue coming from existing customers. It’s conceivable that this metric — along with cross-selling opportunities — could improve further given the ongoing focus on artificial intelligence (AI) capabilities.

Cash flows tend to be somewhat erratic, but it’s worth pointing out that operating cash flows were in line with profits at the year-end. Both inventories and receivables have pulled back year on year, while net debt has fallen to 1.83 times cash profits from a multiple of 2.45 as of 31 October 2022. Unfortunately, shareholder funds remain in negative territory, so — despite improved trading prospects — we would like to see further balance sheet improvements. Hold.

Last IC View: Hold, 144p, 29 Jun 2023