Shares in global music and audio products company Focusrite (TUNE:AIM) gained 1.4% to reach a new all time high of £14.25 after upgrading revenue and profit expectations for the financial year to 31 August 2021.
The shares have gained 37% since the half year results in February, in line with the increase in consensus earnings estimates, according to Refinitiv, following raised company guidance.
Today’s upgrade is slightly more nuanced than previous updates. Trading was said to have remained strong compared with 2020, with the company now expecting revenues to be ahead of market expectations, currently pegged at £170.4 million.
ONE-OFF BENEFIT
In addition to the beneficial effect on profit through increased revenues, the company has experienced a ‘substantial decrease’ in travel and trade show expenses due to Covid restrictions which will result in full year profits being ‘significantly ahead’ of market expectations, which is usually code for at least a 10% beat.
According to Refinitiv, analysts expect pre-tax profit of £37.2 million, which implies that pre-profit could come in above £41 million, representing an 86% increase over last year.
However, the board was keen to stress the one-off nature of the cost savings. That’s important in relation to the valuation of the company’s shares because the value of a one-off effect is far less valuable than a recurring benefit.
It will also create a tougher comparison for next year.
SUPPLY CHAIN DISRUPTION AND COST PRESSURES
In prior updates management have discussed component supply shortages, reassuring investors that the company’s strong supplier relationships had mitigated disruption.
Today the board said it was conscious of the adverse effects that semi-conductors and other component shortages were having on operations, especially considering the strong demand for its products. Freight and shipping costs were said to be ‘significantly’ higher than normal.
