The company has two main divisions: the Focusrite product group (69% of FY18 revenue) produces audio interface equipment used in recording and the Novation product group (27% of FY18) focuses on sound-generating hardware and software that creates electronic music and other types of music. Music production through recording and sound generation The achievement of the company’s plans also depends on the knowledge, judgments and experience of a small management team, so continuity is important and unexpected change could bring risks. Focusrite depends on a small number of suppliers, key resellers and distributors, so the interruption of such relationships could be damaging. Potential effects of Brexit on currency and movement of goods are unknowable. There is a natural hedge in relation to the US dollar. It has a currency risk on its c 25% euro-denominated revenue although it hedges the majority of this euro exposure one year ahead. Focusrite’s products are sourced from China and c 41% of sales are to the US and therefore exposed to tariffs, which have been reflected in our forecasts but may change for better or worse. Our forecasts assume the company will continue to identify and exploit new technological and product opportunities that build its share of the market and monetise its substantial investment in R&D. Sensitivities include the cyclicality of consumer demand in Focusrite’s ultimate markets and the continued technical execution of excellent new products. Sensitivities: Demand, technology, tariffs and FX We introduce our FY21e forecast with 3.4% earnings growth to 18.6p.
#PRO TOOLS 12.7 UNSTABLE UPGRADE#
We upgrade our EPS forecast by 5.4% in FY19 to 17.9p, close to the FY18 beat, and by 2.6% in FY20e to 18.0p. Our FY19 and FY20 forecasts are affected by the US tariffs on goods sourced from China, although we assume some strength from market leadership of both product groups.
Operating costs were controlled, contributing to operating profit growth of 23% to £11.6m with a 1.2ppt margin rise to 15.5%.
In the RoW (up 21% in constant currency) Asian sales were strong although smaller Latin American markets were weak. EMEA sales, up 11% in constant currency, benefited from an 11% strengthening in hedged euro rates, translating to 18% sterling growth and contributing strongly to margin. North American sales grew 17% in constant currency, though performance was held back by Canada. Both product groups performed well with Focusrite growing revenue by 17.2% and Novation by 6.4% against an extraordinary 37.8% in FY17: overall revenue growth of 13.7%. Financials: Double-digit sales growth and FX margin boostįY18 results beat our expectations with pre-tax profit of £11.3m, growth of 19.2% and 5% above our forecast.