Moonpig making progress

Moonpig’s (MOON) shares are down by around a third since last year’s IPO, with investors spooked by the comedown after Covid-19 turbocharged the top line. The online greeting card and gift retailer’s revenue tumbled by a fifth in these full-year results against lockdown-aided comparatives as trading normalised.

It would be easy to be taken in by a post-pandemic narrative of doom and gloom. But the other side of the equation looks rather good. Moonpig has outstripped the targets set at IPO, is aiming for annual revenue growth in the mid teens in the medium term, while taking on new customers at a faster rate than pre-pandemic, and has bumped up margin guidance. And looking ahead, the £124mn acquisition of gift experience platform Buyagift (expected to complete in July) should help take financial year 2023 revenue to around £350mn.

Gross margin fell by 120 basis points to 49.3 per cent in the year, which the company said was driven by “the category mix impact of higher gifting sales” rather than suffering from cost inflation pressures. Higher shipping costs are being mitigated by passing on higher stamp prices. This is encouraging given the wider cost environment.

Begbies Traynor partner Julie Palmer said that "Moonpig has the attributes to succeed in a market where we’re ready to go online to take the effort out of gift giving” but that “the real test will be the squeeze on household finances”. The shares are trading on 18 times forward consensus earnings, and an underlying free cash flow yield of 6 per cent offers “good value” per Numis analysts. We are sticking with our recommendation, with a lower share price offering an attractive entry point for investors. Buy.

Last IC View: Buy, 372p, 30 Dec 2021