A good time to bite into Moonpig


Moonpig (MOON) was already a high growth company before it was supercharged in its last fiscal year as lockdowns and changing consumer trends have benefited e-commerce retailers. But when the likelihood of a decline in future earnings was raised by the group this summer, investors reacted as if they had torn up a Moonpig card to be greeted with gruesome news.

Bull points

  • Market leader
  • Leading brand
  • Strong underlying growth

Bear points

  • Reversed pandemic rebound
  • Debt increased

Shares of the online greeting card and gift card retailer have seen difficult progress since listing in February in the high-end segment of London’s main market. When the results of Moonpig’s post-initial initial public offering (IPO) were released in July, management noted that revenue would drop in the next fiscal year as restrictions were relaxed. Shares went from a post-float high of 488p in June to a low of 285p in October as IPO investors questioned whether they overvalued the company. But the company is trading above its float price of 350p again.

Moonpig’s main business locations are the UK, Ireland and the Netherlands, with the group operating under the Greetz brand in the latter. In both markets, it is the leader in online card retailing. The UK and Irish market is its main driver, taking three-quarters of turnover in the latest results – interim postings for the six months to October 31. The group also records low incomes from the United States, Belgium and Australia.

Technology takes a more important place in the group’s sales. Almost half – 42% – of customer orders went through Moonpig’s mobile app during the semester. This is part of a general industry trend in the online card market, with a recent report from IBISWorld noting that such technology “has enabled industry participants to expand their operations and respond to an untapped market ”. Moonpig does not pass up this opportunity.

Although primarily known for its greeting cards, Moonpig’s gift offering is a growing part of the business. Gifting took its largest share of revenue in the middle results, at 48% of the total. Moonpig’s business model aims to attract customers through its greeting cards, then showcase them and sell them gifts at the same time. To give just a few examples, gifts include flowers, plants, perfumes, baskets, books, and alcohol – a new partnership with Virgin Wines (VINO) complemented its existing offering for thirsty gift recipients. .

Moonpig’s brand equity is at the heart of the group’s success. It’s a challenge to resist humming the commercial chorus “moonpig.com” while discussing the business. Brand awareness is highlighted in new and existing customer data. In interim results, 89% of revenue came from existing customers, while management also noted that Moonpig has been able to “consistently acquire new customers at a faster rate than before the pandemic arrived.” Marketing costs did not explode in this setting and in fact plummeted after the foreclosure restrictions were removed.

The group’s leading position in the market, combined with strong brand equity and customer loyalty, is its economic base. Competitors such as Funky Pigeon – owned by WH Smith (SMWH) – and Card Factory (CARD) find it difficult to compete with Moonpig’s scale.

Pandemic rebound

The intermediate results were confronted with difficult comparisons. The pandemic-induced boom in the year to April 30, 2021 saw Moonpig’s revenue more than doubling to £ 368million, but results also indicated that this rebound would end soon as the group warned of the upcoming “normalization of the frequency of purchase”. It has happened. Unsurprisingly, revenue fell 9% from £ 156million to £ 143million in the interim period.

To demonstrate just how peaking fiscal year 2021 is, growth estimates from management and brokers suggest that this year’s level of sales will not be reached again until at least 2025. But, most importantly, the results Intermediaries said the revenue more than doubled – up 115% – compared to the same period before the 2019 pandemic.

This is a key point. Despite the decline in revenues from the booming performance of the previous period, Moonpig remains a high growth company. In the near term, management expects full-year revenue to be at the high end of its forecast range of £ 270million to £ 285million, which at midpoint would be more £ 100million more than two years ago. In the medium term, it aims for annual growth in turnover “in the middle of adolescence”. This target appears achievable given historical growth rates and recent evidence of interim results – there were 10 million more orders delivered than in the 2019 comparison.

Moonpig’s business model works well in a tough economic environment. Its strategy allows it to be relatively shielded from the headwinds of inflation and the supply chain that hit other listed companies. He is helped by what the group describes as a “lightweight inventory model with short supply chains”. Moonpig does not source directly outside of Europe, and its biggest selling cost element for greeting cards is postage – which is passed on to customers. While the group has had to absorb some non-material price increases in wages and packaging, HSBC analysts said that “in the absence of the supply chain or cost inflationary pressures facing d other UK online retailers, Moonpig appears well positioned to take advantage of its margin. aspirations ”.

These aspirations relate to an adjusted EBITDA margin of 24 to 25% in the medium term. This target has been achieved recently, with 24.5% posted in the interim results. The gross margin, on the other hand, is slowly declining. This rate was 49% in the interim period, but has historically been in the range of 50-55% – indeed, it reached 55% in fiscal 2018. Margins on cards are higher. higher than on gifts, and as gifts continue to take an increasing share of the revenue pie, the downward trend in gross margin may continue.

Tasty fondamental

Moonpig can boast of having impressive financial indicators. Free cash flow (FCF) before finance charges is on the rise, with analysts at JP Morgan forecasting £ 50million and then £ 63million, respectively, for fiscal years 2023 and 2024, which would give an FCF yield of 4, then by 5%.

However, a significant increase in debt in recent times seems worrying. Net debt stood at £ 113million as of October 31, down £ 2million from year-end, but a significant jump from £ 31million on the date mid-2020. Investors may be somewhat appeased that this was primarily driven by the reshuffle of the group’s capital structure around the IPO. Moonpig entered into a £ 195million senior facility agreement in early 2021 for this reason, taking over the liabilities of the former guarantors.

JPMorgan has the stocks traded at a futures price-to-earnings ratio of 36 times, which then drops to 31 and then 27 for fiscal years 2023 and 2024, respectively. This seems relatively undemanding, given the medium-term revenue growth outlook and the broker’s expectation of a “long-term EBITDA margin of 29%”.

It wouldn’t be foolish to claim that uncertainty over the Omicron coronavirus variant could benefit the group. The nervousness over shopping on the high streets could lead consumers into the hands of Moonpig – or trotters – in much greater numbers. But investors drawn only by the near-term pandemic prospects should think again. Longer term, with strong underlying fundamentals and growth expectations, Moonpig looks like an attractive option.

Stocks are still trading well below the summer peak and now could be a good time to buy.

Company details Last name Mkt cap Price 52 weeks Hi / Lo
Moon Pig (MOON) £ 1.27 billion 372p 500p / 280p
Size / Debt NAV per share * Net cash position / Debt (-) Net debt / Ebitda Operating cash flow / Ebitda
Net Liab – £ 113 million 70%
Evaluation Before PE (+ 12 months) Before DY (+ 12 months) Yld FCF (+ 12 months) CAP
33 3.0%
Quality / Growth EBIT margin ROCE 5-year sales CAGR TCAC EPS 5 years
20.4% 121.7%
Forecast / Momentum Before EPS grth NTM Before EPS grth STM 3 month old mom % change in EPS before 3 months
15% -0.6% 9.2%
End of year April 30 Sales (£ m) Profit before tax (£ m) EPS (p) DPS (p)
2019 120 13.9 nothing
2020 173 31.8 6 nothing
2021 368 74.8 17.7 nothing
f’cst 2022 282 44.4 10.3 nothing
before 2023 310 51.7 11.8 nothing
variation (%) +10 +16 +15
source: FactSet, adjusted PTP and EPS figures
NTM = next twelve months
STM = Second Twelve Months (i.e. in one year)

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