Tune in to Focusrite

Enter Focusrite (TUNE): a music and audio products group founded in the 1980s, and led by former  Led Zeppelin soundman Phil Dudderidge. Focusrite develops and markets proprietary hardware and software, ranging from world-leading audio interfaces (such as 'Scarlett' and ‘Clarett’), to electronic synthesisers, to music-making apps. Its products are used by professionals and amateurs alike. The group sells via distributors, retailers and its own e-commerce platform.

Business is booming. A recent trading update revealed that revenues for the year to August 2019 are expected to beat earlier market expectations – landing at around £84m, up from £75.1m in the previous year. The group, which comprises four divisions, has achieved 10 per cent organic growth and also benefited from a six-week contribution from ADAM Audio – a German studio monitor company, specialising in loudspeaker technology, which it bought in July for £16.2m. With margins maintained, a fresh round of broker forecast upgrades were penned, continuing the trend of the past two years (see chart below).

And, notwithstanding the group’s latest purchase, it recorded a strong cash position of £14.9m (against £22.8m in August 2018). Alongside a £10m revolving credit facility, this provides firepower for more deals.

Future success depends on several factors, including Focusrite’s ability to continue innovating. Its organic growth strategy relies on new product releases, underpinned by research and development spending, which is running at 6 per cent of sales. Encouragingly, the just-released edition of the Scarlett range has been well received by both resellers and end users. And the half-year results showed that downloads of Focusrite’s music apps had reached 10.5m, rising by around 120,000 a month.

There are macroeconomic challenges, but Focusrite’s products have low duty rates, so the risk of Brexit disruption isn’t high. And it has pondered the possibility of a warehouse within continental Europe. Meanwhile, some of its products have been hit by the US-China trade tariffs. Importantly, demand has held up well to mitigate price rises.