A disappointing set of earnings released today cloud the outlook for one FTSE 250 stock I have on my watchlist.
I’m talking about Moonpig Group (LSE: MOON), which has seen its share price tumble in early trading. But can the company, listed on the London Stock Exchange for little over a year, recover from today’s setback? Let’s explore.
Poor financial results
At first glance, the FY22 results are grim reading for shareholders in the online greeting card and gift platform. Group revenue declined 17.3%, adjusted EBITDA slumped 18.7%, and adjusted pre-tax profits collapsed 30.9%.
Traders reacted badly to the news, with the Moonpig share price plummeting by 9% during this morning’s action. This latest selloff isn’t something new, however — Moonpig shares have fallen 46% since they were first listed.
The relative declines in various metrics year-on-year are largely down to the company’s impressive pandemic performance as consumers were driven to online purchases during successive lockdowns.
The return to bricks-and-mortar shopping was always going to pose a challenge for businesses that operate exclusively online, and this FTSE 250 stock is no exception. Nonetheless, there’s still plenty here that gives me cause for concern.
Can pigs fly?
Despite worrying headline figures, the financial results weren’t all bad. I’m encouraged by a 28.3% reduction in net debt to £83.8m. Cash generation is also fairly robust. Gross cash and cash equivalents increased to £101.7m from £66m in 2021.
Additionally, revenue growth of 75.8% on a two-year basis looks a lot better than a measurement against the company’s pandemic boom. This is testament to significant growth in Moonpig’s customer base, which bodes well for the future in my opinion.
We remain confident in the outlook for the current year. The long-term opportunity remains vast and we have never been in a better position to capture it.
Nickyl Raithatha, Moonpig CEO
Turning to the forecast for FY23, the business has reconfirmed existing guidance, namely a target for mid-teens percentage underlying revenue growth over the medium-term.
The group can also look forwards to an acquisition of gifting experience outfit Buyagift at an agreed price of £124m. This takeover should provide Moonpig with a plethora of cross-selling opportunities across the gifts market considering Buyagift’s substantial UK footprint, 3.3m customers, and partnerships with 4,400 companies. The transaction is expected to complete by the end of July and Moonpig anticipates it will be margin accretive.
It’s also worth noting the strength of the brand. Competitors, such as Funky Pigeon, which is owned by WH Smith, and Card Factory straggle far behind in terms of market share. Customer loyalty is perhaps the company’s greatest asset in my view.
Would I buy this FTSE 250 stock?
Moonpig certainly has an interesting history from its origins as the brainchild of Dragons Den star Nick Jenkins at the turn of the millennium to today’s position as a FTSE 250 stock. However, this morning’s results have poured some cold water on my enthusiasm for the company. A possible flight to the moon has been delayed in my opinion.
Although I still see a great deal of potential, this is one share that will remain on my watchlist for now. I won’t be buying today.