- Electricals retailer reports record revenue
- Momentum remained strong in final quarter
- Continues to take market share
Shares in Marks Electrical (MRK:AIM) sparked up 8.4% to 90.5p after the rapidly-growing online electricals retailer defied the tough consumer backdrop to deliver a forecast-beating performance for the year to March 2023, driven by continued sales growth and margin expansion.
Despite tough comparatives and a declining major domestic appliances market, Marks Electrical generated 20% year-on-year sales growth in the fourth quarter and also pleased investors with news of a positive start to April.
RECORD ANNUAL REVENUE
In a pre-close trading update, the online white goods purveyor guided to a 21.5% rise in full-year revenue to a record £97.8 million, ahead of the £96.2 million Shore Capital was calling for.
This impressive performance reflected continued market share gains in the major domestic appliance and consumer electronics markets, the small cap’s arguably best-in-class customer service, and the accelerated marketing spend Marks Electrical has put to work to raise brand awareness from a low base.
Marks Electrical also guided to full year adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of more than £7.5 million.
That was ahead of consensus thanks to higher sales and tight cost control, and Marks Electrical closed the year with a better than expected £10 million of net cash in the coffers.
ENERGY EFFICIENT PRODUCTS POWER GROWTH
With consumers struggling with the cost-of-living crisis and seeking to shave money off their utility bills, the Leicester-based retailer’s strong performance was boosted by bumper demand for A-rated energy-efficient washing machines and tumble dryers.
Marks Electrical also saw strong sales of small domestic appliances including air fryers, coffee machines and vacuum cleaners.
The household electricals specialist also witnessed rapid growth in its newly-formed integrated, gas, electric and television installation services, with over 80% year-on-year growth in the fourth quarter.
WHAT DID THE CEO SAY?
Founder and chief executive Mark Smithson said he was ‘delighted to finish the year with revenue growth of 21.5% to a record £97.8 million, especially against the prevailing economic backdrop.
‘This further demonstrates the strength of our business model and the attractiveness and advantage of our market-leading customer offering, as more people continue to discover our brand up and down the country.’
Particularly excited about the potential of the integrated, gas, electric and television installation service, Smithson continued: ‘After an improvement in profitability in the third quarter, we continued this trajectory with improvements in gross margin and operational leverage, allowing us to exceed our full year targets on profit and cash conversion, even as we grow market share.’
WHY ANALYSTS ARE BULLISH
Following the update, Canaccord Genuity reiterated its ‘buy’ recommendation on Marks Electrical, increased its target price from 100p to 117p and upgraded its earnings per share estimates.
‘We believe Marks Electrical is a multi-year compounder that could provide investors with significant upside over the medium term if it continues to gain market share,’ said the broker.
Canaccord Genuity also pointed out its cash war chest puts Marks Electrical in ‘a strong position to continue investment into the business to help underpin sales growth, with Marks investing into additional warehouse mezzanine floors and additional delivery vehicles, to broaden next day delivery.’
Equity Development stressed that Marks Electrical has ‘sizeable headroom’ to grow market share.
‘The company remains active in raising brand awareness through TV, social media, radio and out-of-home advertising. However, with a UK market share of only around 3% and national awareness levels still well beneath 20%, there is still significant scope to invest further in the company’s brand and grow share accordingly.’
