Rapid 33.4% revenue growth, margin expansion relative to the first half, and a record level of delivery volumes were the main features of Marks Electrical’s Q3 trading update, lending significant credibility to the company’s view that it is on track to achieve its full year targets. Based on a combination of relative valuation and DCF, we reiterate our long-held fair value of 150p for the shares.
Marks Electrical’s strong Q3 growth implies a 22% 9-month growth to 31st December 2022 (an acceleration from 15.1% growth in the first six months of the FY), which should also have increased operating leverage and thus driven margin expansion. Cash conversion should have benefited in Q3 from maintenance of inventory levels during the peak trading period and an implied improvement in the inventory:sales ratio. A strong cash position augurs positively for dividend paying capability.
Marks Electrical’s in-house delivery vehicle fleet achieved record quarterly sales volumes in Q3. Service levels and customer satisfaction should benefit going forward from the company’s in-house installation service - over 3,000 installations have been completed since the offering’s launch last August.