Marks Electrical’s sales growth remained strong at 17.8% in Q3, and the company appears on track to match our full year expectations of an 18.7% increase following a strong 21.5% advance in the previous year. But as a company with a core strength in premium products, gross margins have come under pressure - customers’ buying patterns have been negatively impacted by the challenging trading environment. As a result, we cut our FY2024 EBITDA forecast from £8.0m to £5.0m (and reduce FY2025 expectations from £10.0m to £7.0m). Our new fair value is 100p / share.
The long term growth story based on market share and service levels arguably remains intact. After 22% growth in the first 9 months of FY24, the company only has to achieve 9% growth in Q4 to match our forecasts. The company also retains tight control of overheads and plans to keep advertising stable at 5.0% of sales revenue.
Service levels remain central to the business’s offering and ability to grow market share without recourse to discounting. The company achieved record volumes in the first nine months of FY2024 and maintained its industry-leading 4.8 Trustpilot score. MRK has now reached over 60,000 reviews with 95% of them being either 4 or 5 Star.
A reduction in profit expectations is clearly disappointing. That said, investors in our view should appreciate the core qualities of the MRK investment case. In particular, there is significant geographic headroom within the UK for further online market share growth from its current 5% level.
