Musicmagpie’s (MMAG:AIM) shares fluttered 10% higher to 19.4p after the refurbished electronics seller reported a trading rebound in the second quarter following a ‘challenging’ start to the year blighted by postal strikes and the tough consumer market.

News of the return of positive momentum generated a relief rally in the smartphones-to-computers recycler’s shares, which have plunged some 90% from April 2021’s initial public offering issue price of 193p amid downgrades, the consumer spending downturn and concerns around increased competition.

SECOND QUARTER REBOUND

Stockport-headquartered Musicmagpie’s adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose 7.7% to £2.8 million in the traditionally quieter half to May 2023, driven by a particularly strong second quarter performance.

This has left the company on course to meet full year forecasts with the seasonally busier second half, which includes the Black Friday sales weekend, still to come.

The self-styled ‘circular economy pioneer’, which sells refurbished consumer technology including mobile phones, laptops and consoles, suffered a tough start to the half with postal strikes and subdued consumer spending impacting December and January.

However, trading performance strengthened from February onwards.

LOWER VOLUMES, HIGHER MARGINS

Consumer technology revenues fell to £41.2 million from £46 million a year earlier in the half, while disc media and book sales remained in decline, dropping to £20.8 million from £25.3 million a year ago.

During the half, Musicmagpie focused on improving margins through good cost management and a focus on a higher proportion of sales driven through the Musicmagpie store.

And the second half will see the launch of an enhanced Buy Now Pay Later (BNPL) option which will benefit consumer technology sales and increase choice for consumers.

Musicmagpie said the BNPL option will sit alongside its evolving rental offer which will focus on more profitable, higher credit quality customers.

WHAT DID THE CEO SAY?

Co-founder and CEO Steve Oliver said it is ‘especially gratifying to see that our profit improvement has been driven by an increased margin. This has been achieved both by focusing on higher margin sales through our own musicMagpie online store, as well as the continued strong growth of our rental offering.’

Oliver added: ‘While we remain very mindful of the current tough consumer environment, the momentum in our business as we head into H2 means that we are confident of achieving our full year expectations.’

NO ROOM FOR FURTHER DISRUPTION

‘Due to lower volumes and greater margin performance during H1 we have downgraded our full year revenue by 6%, to  £141 million (maintaining our growth rates thereafter),’ said Shore Capital, ‘but our adjusted EBITDA of £8.7 million is unchanged.’

While the broker is ‘pleased to see the good run rate as we enter Q3’, it also warned that its forecasts ‘do not leave much room for any unexpected trading disruption.’

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