One of the most telling aspects of Focusrite’s (TUNE) full-year results is the 37 per cent increase in inventories combined with a 61 per cent increase in net cash – a pointer that the music and audio products group is keeping a firm grip on working capital, which accounts for 18.2 per cent of revenue. Why does this matter? Well, as management explains: “If the working capital is closer to 25 per cent of revenue, the cash generation is reduced and there is likely to be too much stock. If the working capital falls closer to 15 per cent of revenue, it is likely that some stock may be running low.”
You could argue that the group now has too much cash on its books given it represents over half of net assets, but it’s not a bad problem to have. Other areas of concern, namely the US/China tariff dispute and Brexit uncertainties, are beyond management’s control, but material given production is centred in China, while 40 per cent of sales are conducted in the US. Because of the premium status of its products, management has been able to pass through the tariff increases. Any Brexit-linked sterling appreciation will have an impact on the value of the group’s euro-denominated sales, although 75 per cent of that exposure is hedged over the current year.
Panmure Gordon gives adjusted profits and EPS of £15.3m and 18p for the August 2019 year-end, up from £14.5m and 17.6p in FY2018.
| ORD PRICE: | 435p | MARKET VALUE: | £253m | |
| TOUCH: | 425-445p | 12-MONTH HIGH: | 505p | LOW: 303p |
| DIVIDEND YIELD: | 0.8% | PE RATIO: | 24 | |
| NET ASSET VALUE: | 75p* | NET CASH: | £22.8m | |
| Year to 31 Aug | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 † | 41.0 | 5.8 | 10.3 | na |
| 2015 † | 48.0 | 6.5 | 10.4 | 1.80 |
| 2016 | 54.3 | 7.1 | 11.8 | 1.95 |
| 2017 | 66.1 | 9.5 | 15.4 | 2.70 |
| 2018 | 75.1 | 11.7 | 18.4 | 3.30 |
| % change | +14 | +23 | +19 | +22 |
| Ex-div: | 27 Dec | |||
| Payment: | 18 Jan | |||
| *Includes intangible assets of £6.0m, or 10p a share † Focusrite listed in December 2014 | ||||
