Focusrite PLC (LON: TUNE) 

Focusrite PLC is an FTSE AIM 100 index listed global music and audio products company. The Company is principally engaged in developing and marketing hardware and software products used by recording professionals and musicians. Moreover, TUNE trades under seven key brands.  

Recent trend of dividend payments

TUNE has a progressive dividend policy and declares a final dividend of 3.70 pence per share to be paid on 31 January 2022, while the ex-dividend date will be 30 December 2021. It will take the full-year dividend to 5.20 pence per share, an increase of around 24% from the prior-year levels.

Growth Prospects

• Cross-Business Initiatives: The Company had completed several cross-business initiatives during FY21, with a few more to be completed in FY22. Furthermore, the benefits of these would be expected by the latter part of FY22 and into FY23.
• Acquisition Benefits: TUNE had completed the acquisition of Sequential in April 2021 for approximately USD 20 million net of acquired cash. Moreover, the Company had experienced a partial year contribution from Sequential and a full-year contribution of Martin Audio during FY21.
• New Launches: The Company had launched around 13 new hardware products within Focusrite as well as numerous software/firmware updates. Furthermore, TUNE had also launched Optimal Audio, operating in the commercial audio market.

Key Risks

• Covid-19 Pandemic: The new variant of the Covid-19 pandemic, Omicron, has caused a significant decline in the UK Equities.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.
• Rise in Interest Rates: The rising inflation worldwide had put pressure on several Central Banks to raise interest rates as they struggled to curb it.
• Environmental Compliance: The failure to adopt or apply ethical standards and environmental compliance may affect the reputation of TUNE.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Focusrite PLC.

 Dudderidge (Philip Stephen) is the most significant shareholder as it holds nearly 19.27 million shares as of 30 September 2021. 

FY21 Financial & Operational Highlights (for twelve months ended 30 June 2021, as of 14 September 2021)

(Source: Company result)

• Robust Top-Line Business: The top-line business grew by around 34% to £173.9 million during FY21, illustrating the continued growth of the core customer base.
• Profitability: The adjusted diluted earnings per share grew by around 75% during FY21.
• Balance Sheet: TUNE had managed to increase the net cash from £3.3 million as of 31 August 2020 to £17.6 million as of 31 August 2021.
  

Financial Ratios (FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 07 December 2021, at 09:44 AM GMT, TUNE’s shares were trading at GBX 1,622.00, down by around 1.10% from the previous day closing price. Stock 52-week High and Low were 1,830.00 and GBX 950.00, respectively.

From a technical perspective, the stock price is hovering above the 20-days exponential moving average of GBX 1,568.97, indicating an upside potential in the stock price. Moreover, the MACD line remained above the signal line, supporting an upside momentum in the stock price.

Over the last one year, TUNE’s stock price has delivered a positive return of ~71.85%, and it has outperformed the FTSE All-Share Leisure Goods index (benchmark sector) with a return of around 1.47% and FTSE AIM 100 index (benchmark index) with a return of approximately 6.13%. 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The Company expects the cash reserves to remain adequate over the next few years. TUNE has an exciting product roadmap and growth potential, with multiple new products anticipated throughout FY22. Meanwhile, the Company had taken several cross-business initiatives, which would make healthy revenue contributions in the latter part of FY22 and FY23 as well. The Company remained committed to the announcement of several product introductions planned to occur later in FY22. TUNE may undergo sizeable corrections because of the rising interest rates prospect, global inflation, and Omicron variant of the coronavirus. Overall, the Company remained cautiously optimistic about the prospects for modest revenue growth during FY22.

Considering the robust dividend growth during FY21, strong financial performance, decent leverage position, accelerated operational progress, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Focusrite PLC at the current price of GBX 1,622.00 (as on 07 December 2021 at 09:44 AM GMT), with lower-double digit upside potential based on 39.47x Price/NTM Earnings per share (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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