Marks Electrical outstrips rivals

Marks Electrical (LON: MRK) continues to outperform its electrical retail rivals and is taking market share. The share price has been on an upward trajectory since last October.

Revenues in the third quarter to December 2022 were one-third ahead at £29.8m and margins are improving. More customers are taking advantage of the installation service offered by the company. Nine-month revenues are 22% higher at £72.9m. The interim growth rate was 15%.

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Profit is still likely to be lower this year and earnings certainly will because of the additional shares in issue after the 2021 flotation. Marks Electrical raised £5m at 110p a share when it joined AIM in November 2021. However, Marks Electrical has been able to maintain a good level of profitability even in tougher times.

Full year pre-tax profit is expected to decline from £6.44m to £5.67m, but the strength of the third quarter revenues means that there I a chance that this figure could be beaten. A pre-tax profit of £8m is expected next year.

Although inventories levels are higher, net cash is forecast to improve to £3.87m by the end of March 2023. A full year dividend of 0.67p a share is forecast.

AO World

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In contrast, AO World (LON: AO.) third quarter revenues were 17% lower. That was in line with expectations, although full year profit guidance has been raised. The reduction was partly down to eliminating unprofitable business.

Margin improvements mean that AO World should return to profit in the year to March 2023. A full pre-tax profit of £1.8m is expected on revenues of £1.13bn. Pre-tax profit could recover to £20.3m in 2023-24. Even so, the share price fell 5.4% to 65.85p. That is equivalent to 24 times prospective 2023-24 earnings.

In contrast, the Marks Electrical share price rose by 3.9% to 93.5p, which means it is trading on 22 times forecast 2022-23 earnings, but that multiple falls to 16 the following year.

AO World already has a large market share and growing revenues will be difficult – particularly profitably. In contrast, Marks Electrical has scope to grow existing product ranges and move into new areas. Marks Electrical is a much more attractive investment.

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