Marks Electrical continues to outperform market

Online electricals retailer Marks Electrical (LON: MRK) is still gaining market share with a 15% increase in sales during the first half of the financial year. That rate of growth accelerated in the last couple of months of the period.

Sales are growing in the domestic appliances and consumer electronics markets thanks to its positive reputation for service due to its own fleet of delivery vehicles and recycling offer. More installations are being taken in-house to improve overall service.

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The total market has declined during the six-month period, but Marks Electrical has maintained profitable growth. The company has been pushing energy efficient products. It is also further expanding the range of products it offers by moving into IT products.

Marks Electrical is in a stronger cash position than previously anticipated with stockturn improving. There are no borrowings. Cash was £7.7m at the end of September 2022 and should continue to build up year-on-year. It is expected to improve from £3.87m to £8.5m over the 12 months to March 2023. This enables Marks Electrical to take advantage of opportunities to buy stock at attractive prices.

Marks Electrical cannot totally buck the current economic conditions and Equity Development has trimmed its full year sales forecast by 5% to £89m, which is still more than 10% ahead of the previous year. The level of discounting by rivals could hamper growth, but Marks Electrical has shown that it has the ability to cope with tough market conditions.   

Gross margins could dip slightly from last year’s level of 19.8%. Advertising and marketing are likely to remain 5% of sales, but other operating expenses will further reduce operating margins. Pre-tax profit is expected to fall from £6.44m to £5.67m this year, before recovering sharply next year as margins potentially recover.

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The share price is 4.5% ahead at 58.5p, which is trading on less than 14 times prospective 2022-23 earnings. That could fall to ten next year if forecasts are achieved.

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