Shares urged investors to tune into the exciting recovery story at Gear4music (G4M:AIM) on 15 May, with the shares swapping hands at 140p-a-pop. We highlighted that the online musical instrument and equipment retailer was trading at a discount to its recent history and had returned to growth, while financial risk was also reducing with net bank debt coming down.
Our buy thesis was also based on the fact the e-commerce play was poised to profit from the insolvency of two price discounters in the UK and wider European markets, which would lessen competitive pressures on the business.
We also observed that the guitar, keyboard and drum seller had extended its addressable market through acquisitions in the AV market and made a foray into trading second-hand products.
WHAT HAS HAPPENED SINCE WE SAID TO BUY?
With positive trading momentum at its heels, Gear4music has delivered two upgrades to forecasts for the year ending 31 March 2026 in just three months, the latest upwards earnings revision announced on 5 September. Gear4music now expects to beat consensus estimates for sales of £155.8 million, EBITDA (earnings before interest, tax, depreciation and amortisation) of £11.3 million and taxable profits of £3 million.
Revenues were up 27% year-on-year in the first quarter, marking Gear4music’s best growth rate since Covid lockdowns triggered a boom in spending on hobbies including music, with management’s refreshed growth strategy delivering ‘tangible results’.
As we predicted, following the demise of several weak competitors, Gear4music is profiting from ‘a more favourable competitive landscape across both our UK and European markets’ which is allowing the group to ‘successfully capture additional market share’.
WHAT SHOULD INVESTORS DO NOW?
While the shares have more than doubled since our ‘buy’ call, they remain well below peaks scaled during the pandemic and with ‘traction’ under a refreshed growth strategy driving earnings higher, we’d be minded to let this winner run.
Following the latest update, Singer Capital Markets analyst Matthew McEachran noted the ‘the elevated competitive standing of this sector “winner”, higher growth rate and profitability, and visible path to net cash next year’.
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