As legendary investor Warren Buffet observes, “It’s only when the tide goes out, do you discover who's been swimming naked.” Equally though, “not every business is created equally.”
Take the £5.4bn UK major domestic appliance (MDA) market as a case in point. Here there have been profit warnings from the likes of AO World & Currys, reflecting a >20% decline in online sales between Apr-June’22.
In comparison however, leading internet retailer Marks Electrical (MRK) today said that it had delivered LFL revenues up +13.7% to £27.7m (vs £24.3m LY) for the 4 months ending Jul’22. Driven by impressive growth, especially across televisions, vacuum cleaners, washers/dryers and air conditioning.
Similarly, lifting MRK’s share of the overall MDA market to 2.1% vs 1.5% 12 months ago, & by 1.3% to 3.9% of the digital only segment. Clearly ‘the strong are getting stronger’.
But that’s not all. Elsewhere the company has continued to control costs, cashflow & inventory levels, even in the face of aggressive discounting by rivals & higher marketing spend (eg cost per click).
Meaning, current trading remains in line with FY’23 expectations, with house broker Panmure Gordon forecasting turnover, adjusted EBITDA, PBT & EPS of £92.1m (+14.4% YoY), £7.3m (+1.4%), £6.1m (-1.6%) & 4.7p (-5.3%) respectively.
This being H2 weighted reflecting the usual Xmas trading period, alongside closing Mar’23 with est. net cash up £2.0m to £5.9m.
On top, CEO Mark Smithson wants to eventually increase #MRK’s market share to 10%, equivalent to £540m in revenues. Which assuming a sustainable 8% EBITDA margin and a 10x-12x multiple, would generate a hypothetical, long term 400p-490p/share valuation.
Mr Smithson commenting: ”We’ve started the year well despite a very tough market back-drop. Our differentiated operating model, leading customer service, [4.8 Trustpilot score], and free next day delivery provides a unique offering that sets us apart from the competition.
Whilst the remainder of the year is difficult to predict, our focus on maintaining a market leading customer proposition and healthy cash flow provides us with the best platform to generate continued profitable market share growth."
Wrt valuation, Panmure Gordon have a 120p Target Price