The share price graph of Marks Electrical Group is like the performance of my ageing oven. Both have been on a largely downward drift since November, when Marks listed at £1.10 and my oven failed to roast a chicken.
The stock is now at 91p, while my oven is also languishing — in a dump somewhere. I had to invest in a new Neff, which was when I came across Marks Electrical and its free, next-day delivery. That offering has impressed the City: FinnCap’s Nigel Parson, for instance, calls Marks “an outstanding investment proposition”.
For now, the Aim-listed firm is a tiddler in Britain’s £5.3 billion major appliances market, with a 1.2 per cent share. To tip it is a risk, but boss Mark Smithson has been at the helm since he started selling second-hand cookers out of his dad’s garage in 1987. He has also retained a 71 per cent stake, and that is some incentive to excel.
While Marks’s near-£100 million market cap is a quarter of AO’s and a tenth of Currys’, its USP is that its technology and warehousing are ready for dramatic expansion without needing further investment.
Unlike its better-known rivals, it focuses on pricey white goods instead of cheap electricals, meaning the firm is selling higher-margin, more valuable stock for largely the same outlay on petrol, warehouse and labour costs.
Marks’s balance sheet, meanwhile, is cushioned by almost £4 million net cash, and it enjoyed a 44 per cent surge in sales to £80.5 million for the year to March 31, 2022.
At first blush, even with the share slide since the float, Marks shares may seem expensive relative to peers: they are changing hands at about 20 times this year’s expected earnings, while the ratio at Currys is about nine times and loss-making AO has a negative ratio.
However, Marks has far better prospects. AO is struggling in Europe and has a weak balance sheet, while Currys is vulnerable to losing sales amid high inflation.
Marks’s appeal to wealthier buyers should help it ride out the cost-of-living crunch. It also has a simpler operating model than rivals, with a single, 215,000 sq ft warehouse just off the M1 in Leicester, from where its growing fleet of lorries make fast, free deliveries across the country. That will woo the next generation of shoppers used to getting their groceries biked round in ten minutes. Parson, who has a 150p target price, said: “Marks has no satellite depots, no overnight trunking and no HGV drivers to add unnecessary cost and complexity.”
Word is getting out that Marks is pretty hot at delivering ovens; the shares should rise accordingly. Buy.
