Invest in Chile, Disney and silver
Richard Beddard
Marks Electrical Group (Aim: MRK) listed on the stockmarket in November. Barring one set of half-year results, we have learned little about it since – except the share price has risen by 10%.
The company’s flotation allowed owner and founder Mark Smithson to cash in nearly 30% of his shares at a propitious time. The company sells cookers, refrigerators, washing machines and televisions, and for substantial periods competitors such as Currys and John Lewis had closed their retail stores due to lockdowns. Almost all Marks Electricals sales were made online.
An internet-sales boom coupled with a shortage of supply drove profitability to remarkable levels. So we must be cautious about the firm’s immediate prospects. Although Marks Electrical anticipates revenue growth of 35%-45% in the current financial year, profit margins will fall now that rivals’ stores have reopened. My back-of the-envelope forecast suggests, conservatively, that the shares may be trading on a multiple of 27 times the profit it might earn in 2022.
That is quite a price tag, but over the long term Marks Electrical believes it can increase its market share from 1.5% to 10%. One reason is that it is almost completely unknown, something it plans to change by spending more on advertising. Another is that it is a simpler, more coherent business than its rivals. A focus on premium brands of bulky electricals means the value of each lorry load is high, which justifies the expense of owning its own fleet staffed with trained installers who are incentivised partly by customers’ ratings.
Vehicles are maintained and fuelled at its only warehouse, from which it can deliver next day to nearly all the people of England and Wales. Automated systems keep prices keen without undercutting rivals because it sells itself on service – witness glowing reviews. As customers move their spending online, Marks Electrical may well be a better long-term bet than the alternative, bigger but less focused AO World.
Jonathan Compton
I have been acloset bear for the last three years, although always fully invested. I froze in
