a re-assuring set of results from hmv – SBM MAKES THEM A SPECULATIVE BUY

2 mins. to read
And so, the not so fantastic Mr Fox’s releases his final set of HMV results today. There are a number of encouraging signals within this release, not least the Profit re-iteration for 2013 which is in stark contrast to many anal-ysts’ expectations.
Excerpts – 

Looking forward into 2012/13, with the changes we have made to our relationships with our suppliers and the continuing progress in developing our technology sales, the Company remains confident that it will return to profitability. We expect pro forma PBT to be at least GBP10m for 2012/13

The strategic review of the remaining Live business is ongoing and the Company is currently in preliminary discussions regarding potential options for its disposal

The strategy of the company is to be the UK’s leading entertainment brand, offering our customers the best technology devices, products and services

Entertainment devices will grow to become the most significant part of our business. Our offer will be differentiated through the quality of our in-store experience and the digital entertainment content that will be bundled with devices. Music, film and games will remain at the heart of our offer delivered in both physical and digital form and through increasingly deep partnerships with our suppliers.

The Group’s continued store re-fits which incorporates the roll out of more technology focused products seems to be bearing fruit. Similarly the demise of Game Grp is already having a positive effect on their performance in the key games market that is worth of £2.4bn a year in the UK.

Further opportunities for the business are seen as follows – 

Leveraging further the value of the HMV brand and its retail presence through partnerships with technology device suppliers and other industry participants;

Developing HMV’s online and multichannel offerings, particularly in light of the removal of LVCR (low value consignment relief) which will assist HMV to compete on a level playing field with pure internet competitors , and to offer improved services such as click-and-collect in stores;

Through further exploitation of customer relationship management strategies. HMV has since May 2009 acquired over 2 million loyalty card holders.

These opportunities and strategy represent an evolution in our thinking over the past 18 months. In March 2010 the Group outlined its strategy for the next three years, which was intended to deliver sustainable growth over the medium and long term. The plans for the HMV business included continuing to evolve HMV’s product mix and growing in Live and Digital.

Below is the 2 year weekly chart for HMV with th various positive technical patterns annotated. They say “the darkest hour is always before dawn”, well the chart looks to be past danw & now ‘early morning’ to us whilst the current fundamental snapshot is still at dawn.

Technical invariably lead fundamentals and we are to take our lead from this aswell as the positivity drawn from this mornings results in moving the stock to a Speculative Buy. If they get a good price for the balance of the Live division (£60-70m) then, in unison with the new supplier terms that are very positive on the pro forma debt profile, we could be looking at a company with net debt of less than £50m in 12 months time – at that point they are a very attractive acquisition target, cerainly if the market cap remains here at just over £15m.


Comments (1)

  • SpreadBetDad says:

    'Speculative buy' here sounds far too optimistic! They are so far behind any of their competitors in digital, have no one in their highstreet stores (who shops at highstreets now, anyway?) and with focus on 'entertainment' – didn't GAME just go bust?? This just seems like a complete recipe for disaster…

    If it takes them 18 months to turn around digital just to get on par with other offerings available now, imagine where their competitors will be by then?

    If you buy this, you must be on something!

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