HMV Group plc Ordinary 1p (HMV)

Company overview

The group is a major retailer of music, films and gaming software via its HMV brand, along with and books via its Waterstone’s outlets. Although the bulk of sales are generated in the UK and Ireland, overseas stores include interests in Canada, Hong Kong, Holland and Belgium.

HL Comment (14 January 2010)

The group’s recent trading statement (14Jan2010) again saw management unveiling a mixed performance. Whilst the group’s HMV UK business reported its third successive year of record trading, the performance of the company’s Waterstone’s books business was summarised as unsatisfactory. HMV UK grew total sales by 14.6pc, driven by positive performances at the company’s ex-Zavvi and temporary Christmas stores. Furthermore, improved sales trends were seen at the group’s HMV International business, whilst the HMV’s online channel enjoyed double digit sales growth. As for Waterstone’s, total sales declined by 8.6pc, with like-for-like sales down by 8.5pc. All in all, while noting that further improvements were necessary, management remained confident in its ongoing recovery plan along with the group’s increasingly specialist position on the high street.

Negative Points

• The group’s products lend themselves to the format of internet retailing, with the shadow of Amazon and Apple continuing to cast itself.
• Overall group like-for-like sales remained in decline (-1.2pc).
• Competition from the supermarkets remains intense.
• Group debt has recently increased, mainly thanks to an extension of the group’s online interests.
• With UK government borrowing at record highs, spending cuts and possibly tax increases look likely over the medium term.

Positive Points

• Market share gains have been made, with the demise of fellow retailers such as Woolworths and Borders potentially working in the group’s favour.
• A push into internet retailing continues.
• The dividend currently provides some share price support.
• A restructuring plan has reduced group costs.
• Management initiatives are evident, with complementary arenas such as concert ticket sales, a loyalty card scheme and even cinemas being pursued.
• Relatively low cost ticket items should continue to appeal to hard pressed consumers.
• The wider economy has shown signs of stabilising, with growth in unemployment levels recently slowing.

Consensus
On balance, market consensus opinion currently denotes a strong hold.

All yield figures are variable and not guaranteed.

Fundamental Data

Year Ending	Revenue (m)	Profit Before Tax (m)	EPS (p)	P/E Ratio	PEG	EPS Growth (%)	Total Dividend	Dividend Yield
25-04-2009	1,956.70	61.30	10.80	13.00	1.30	10.00	7.40	5.10
26-04-2008	1,874.90	52.00	9.20	12.70	0.60	23.00	7.40	5.80
28-04-2007	1,684.80	18.70	3.50	13.80	n/a	(53.00)	7.40	6.50
29-04-2006	1,825.90	80.20	14.00	10.30	n/a	(25.00)	7.40	4.10
30-04-2005	1,885.60	128.00	22.70	9.70	n/a	n/a	6.80	3.00