A cynic might conclude that Moonpig’s core business model is built on a trend that’s on the wane. Surely ever fewer of us are sending birthday, Christmas and greetings cards to our friends and relatives; isn’t that all a little passé?
Well, it turns out perhaps not. That we are still sending cards, increasingly online, and doing so with gifts attached, helped Moonpig to complete a multibillion-pound listing at the beginning of the month and join Dr Martens, the boots and shoes retailer, as one of the year’s early big IPO blowouts.
It came to market flushed with the success of runaway sales during the months of lockdown, as customers flocked to its site as a way of reaching out to loved ones.
But the company has made clear that it does not expect its stellar Covid-driven growth to continue at the same pace, with the level of individual spending set to drop next year. And the shares, which roared ahead after the flotation, have begun to fade. Could it be that the cynic ends up having a point?
Moonpig was founded in 2000 by Nick Jenkins, 53, a commodities trader who named the business after the nickname, which he hated, that he was given at school. Having initially specialised in personalised online cards, it expanded into gifts such as flower and chocolates.
For those of us prone to forget important dates, it usually promises next-day delivery, although the disruptions caused by coronavirus and the recent bad weather have extended that by up to two days. As well as the UK, it also operates in the Netherlands, as Greetz.
The group, part-owned by the private equity investor Exponent since 2016, priced its shares at 350p, at the top end of its earlier indicated range of 310p-350p and giving it an initial value of £1.2 billion. Existing investors, including management, sold shares at the listing, but Moonpig also raised proceeds of £20 million by issuing new shares.
Having risen to a peak last week of 426p, the shares were trading up 2½p or 0.6 per cent at 422½p yesterday, a little lower but still assigning a worth to the retailer of just under £2 billion.
The valuation, equivalent to 11.4 times last year’s revenues and 62.2 times last year’s profits, is clearly a punchy one and is based on growth, of which there’s been plenty, along with the ability to generate cash. Revenues grew by 36.7 per cent in 2019 and by 44 per cent last year, before rocketing by 135 per cent to nearly £156 million over the six months to the end of October.
The chances are high that the momentum will continue while lockdowns remain in place, spurred along by the enforced closure of high street retailers such as Card Factory. Competitors can operate online, of course, and might see this time as an opportunity to raise their game.
Once the pandemic passes, Moonpig’s stellar growth spurt will slow down, though some investors may well be happy if the company merely repeats its performance of previous pre-Covid years.
It seems clear that the prevailing trend, certainly in the UK, is that the volume of cards being sent is slowing over time but the value of each purchase is rising. Moonpig is well placed because of all the additional items that it sells to go with cards, extending from prosecco to balloons.
Nevertheless, online retailing is a wildly competitive market, particularly with groups such as Amazon on such strong form.
Moonpig does not pay a dividend and has no intention of doing so while it is in growth mode, which is likely to be for at least the next few years. With short-term growth tempering, and likely to be increasingly hard fought for, the shares do not look attractive.
Advice Avoid
Why High quality business with strong offering and good customer loyalty but the valuation looks rather high
PZ Cussons
It’s been all change at PZ Cussons, the consumer goods company behind brands such as Imperial Leather and Carex.
Caroline Silver, 57, the chairwoman, has overseen a full management overhaul with a new finance director and company secretary — and a new chief executive in the form of Jonathan Myers, who joined in May.
Myers, 51, hasn’t messed about, cutting the dividend and diverting capital into investing in the brands, selling off unwanted arms and simplifying the group’s structure. The last time this column looked at PZ Cussons, in August 2019, it avoided the shares. Has he made it more attractive?
PZ Cussons was founded in Sierra Leone in 1884 to facilitate the trading of goods between west Africa and Britain. As well as operating across Europe and in Asia it trades in Africa, mainly in Nigeria, which has been politically volatile and in a prolonged economic downturn.
The new boss seems to have accelerated a pre-existing retrenchment in Nigeria, which has been behind a string of profit warnings at the company, most notably selling off its milk business, Nutricima, to a Dutch trade buyer for an undisclosed sum. While Nigeria has been a big revenue generator for PZ Cussons, it has made minimal profits so cutting its exposure seems like a good idea.
Impressively, investing in the undernourished brand names has already started to pay off for Mr Myers. He was able to report last month that revenues at its four core products — Carex, Morning Fresh, Cussons Baby and St Tropez — had risen by 21.9 per cent over the six months to the end of November, spurred by strong Covid-induced sales of sanitisers and hand washes.
Over the same time frame, group revenues grew by just over 10 per cent to £312.9 million and pre-tax profits and operating profits were 13 per cent higher at £36.4 million.
Since Myers took charge, the shares have gained just over 40 per cent so shareholders are clearly liking what he’s been doing. The stock, flat yesterday at 265p, changes hands for 21.7 times Investec’s forecast earnings for a dividend yield of 2.2 per cent. It’s much more attractive and well worth holding.
Advice Hold
Why Business is improving but the shares aren’t cheap
