- Competitive pressures easing
- Consolidation opportunity excites
- ‘Marked improvement’ in sales
On a busy day for retail reporting, investors tuned into positive developments at online musical instruments and equipment seller Gear4music (G4M:AIM).
Shares in the electric guitar, drum kit and piano purveyor soared 17% to 137.5p on news the business has not only returned to double-digit revenue growth, but also bought the assets of an aggressive rival from the administrators, which means the company should profit from an easing of competitive pressures.
Even after today’s rally however, Gear4music’s share price remains a fraction of the £10 peak reached during the lockdown-induced online retail boom.
GAK ASSET GRAB
The UK’s largest musical instruments retailer has snapped up stock with a cost value of £1.8 million, together with assets including websites, trademarks and commercial data, for a total of £600,000 from the administrators of GAK, the company behind GAK.co.uk and The Guitar, Amp & Keyboard Centre.
York-headquartered Gear4music clarified that it is not acquiring any part of GAK’s trading business, nor any other assets or liabilities, and has no current plans to use the GAK trading name.
Nevertheless, GAK’s demise marks the exit of a price-aggressive discounter from the UK market with annual turnover of roughly £20 million and Gear4music should be able to exploit this change in the competitive landscape.
In fact, GAK is one of two price discounters in the UK and wider European markets that have gone under of late, with Netherlands-based online retailer BAX lurching into insolvency on 2 April.
As such, there’s an increasingly compelling market consolidation opportunity ahead for Gear4music, which should benefit from a more stable pricing environment and see increased volume from suppliers, thereby enhancing its gross margins and market share.
RETURN TO GROWTH
Led by CEO Gareth Bevan, Gear4music added that the ‘marked improvement’ in UK and European like-for-like sales witnessed in the latter half of March has been sustained over the first two weeks of April, with a return to double-digit sales growth over the last 30 days.
This performance gives the company, which sells own-brand instruments as well as third-party brands including Fender, Yamaha and Roland, further confidence in meeting forecasts for the year ending 31 March 2026.
Current consensus calls for revenues of £153.8 million, EBITDA (earnings before interest, tax, depreciation and amortisation) of £10.9 million and profit before tax of £2.65 million, implying a healthy rise from the £1.6 million expected for the year to March 2025.
Financial risk is also reducing at Gear4music, which expects to report a further reduction in net bank debt to £6.4 million as of 31 March 2025.
That is down from £7.3 million at the end of March 2024 and £14.5 million a year earlier.
