Marks Electrical released today a pre-close trading update for twelve months to 31st March, which confirmed our expectations of 44% sales growth and 9.0% EBITDA margins. Moreover, the company’s strong end to the year – i.e. over 25% year on year growth in March 2022 - augurs well for FY2023, when we expect sales to expand by a further 20%. The strong £3.9m net cash position, sustained investment in marketing, and expansion to the UK delivery footprint all combine to support an optimistic view going into the new financial year.
Operational highlights in FY2022 included strong market share gains in Major Domestic Appliances (MDAs) and Televisions, added focus on brand awareness initiatives, an increase in the number of delivery vehicles and warehouse efficiency improvements. Encouragingly, the company’s Trustpilot rating - an objective measure of customer service - improved to 4.8.
Looking ahead to FY2023, MRK confirms that trading momentum has continued during the start of April, which sets the company up well to match its targets for the new financial year. Other progress points which we infer are expansion into the southern areas of Scotland (including Edinburgh and Glasgow) as well as a broader English distribution footprint.
Today’s statement confirms that prospects remain exciting. The scalable nature of the business should deliver increased operating margins even after brand promotion costs. Plus, there is scope to sustain growth from relatively low inventory levels, which benefits free cash flow. At our 150p fair value level the implied ratings are an FY2023 EV/sales ratio of 1.6x and 18.7x EV/EBITDA.
The audio summary of the note is here:
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