HMV Group plc Ordinary 1p (HMV)

Company overview

HL Comment (30 June 2010)

The group’s recent full year results (30June2010) materialised broadly in line with analyst expectations. Total group sales grew by 3.1pc to a record in excess of £2 billion, while pre-tax profit before exceptional items increased by 17.7pc to £74.2m. Cost cutting continued to aid the performance, whilst management’s push into new arenas such as live music and ticketing also played its part in expanding sales. However, same store sales for both HMV UK and Ireland and the books division Waterstone’s both declined, falling by -2.4pc and -6.2pc respectively. Furthermore, group net debt rose from £6.5m last year to £67.6m, pushed higher by acquisitions made over the period.

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.
• Group like-for-like sales remained in decline.
• 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 tax increases may impede consumer confidence going forward.

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, while management is also looking to expand other entertainment arenas such as live music and ticketing sales.
• The dividend currently provides some share price support. The payment has been maintained at the same level as last year.
• Costs continue to be targeted.
• Relatively low cost ticket items should continue to appeal to hard pressed consumers.
• The wider economy has shown signs of stabilizing.

Consensus

On balance, market consensus opinion currently denotes a cautious buy.

All yield figures are variable and not guaranteed.

Fundamental Data