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 (1 July 2008)

The HMV brand dates back to 1921, when the first HMV store was opened on London’s Oxford Street. Since then, the company has had several owners and subsequently came to the UK stockmarket in its current form back in May 2002. HMV UK & Ireland operates through 250 stores, along with an online operation, selling music, films and games. The group’s overseas business is conducted via HMV International, which now consists of 121 stores in Canada, Hong Kong and Singapore – the company’s Japanese business was recently sold.

The company’s recent full year results (01July08) provided good growth in profits, with group operating profit jumping 22.6pc to £66.2m, before exceptional items, buoyed by growth in gaming sales in particular. The group’s UK and Irish HMV division saw total sales up by 15.8pc, with like for like sales growth of 11.4pc - games and technology sales now represent 21pc of HMV UK & Ireland sales, versus 14pc in 2007. The group’s book operations conducted via the Waterstone brand saw total sales increase by 5.0pc, with like for like sales up by 3.3pc. Like-for-like sales at the group’s HMV International operation proved somewhat more disappointing (-1.3pc), with growth in Asia offset by a decline in Canada. In addition, the relatively new management’s three year recovery plan was said to be running ahead of plan.

Acting for negative investor concerns, the migration of music and film sales online remains a major concern, aggressive competition from the supermarkets is ongoing and the general outlook for consumers is increasingly clouded. Furthermore, the games arena, from which good progress has been made, continues to see hot competition. On the positive, management’s recovery plan is showing solid signs of progress and the dividend payment remains highly supportive. On balance, market consensus opinion is currently neutral in tone.

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
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
24-04-2004*	1,793.47	117.65	n/a	n/a	n/a	n/a	5.80	2.60

* Prior to 30th April 2005, figures were stated under UK Generally Accepted Accounting Principles (GAAP). Recent figures stated under International Financial Reporting Standards (IFRS).