Marks Electrical (MRK:AIM) 69.35p

Loss to Date: 29.3%

In late August 2023 we said online domestic appliances and consumer electronics retailer Marks Electrical (MRK:AIM) had good growth potential driven by market share gains and geographical expansion.

Over the last three years, its share of the online major domestic appliances market has more than doubled to 4.7% while its share of the online consumer electricals market has increased by a factor of six to 0.6%.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

In a trading update on 10 January, the company said it experienced strong revenue growth in its third quarter to the end of December of 17.8% to £35.1 million taking year-to-date revenue up 22% to £88.9 million.

The firm also said it had continued to increase market share in online domestic appliances and consumer electronics. A strategic decision to keep delivery and installation services in-house resulted in record volumes during the peak trading period.

Unfortunately, that is where the good news ended. Economic uncertainty has led to consumers becoming ‘highly price-conscious’, resulting in pricing pressure and lower gross margins.

Despite action to control other costs, the firm said there would be a temporary but  ‘material’ impact on full year profits. In addition, management cautioned on the speed of recovery in consumer buying patterns and therefore gross margins.

Analysts at Canaccord Genuity have reduced their 2024/25 EBITDA (earnings before interest, tax, depreciation, and amortisation) estimates by 38% and 28% respectively.

However, the broker remains constructive on the shares: ‘We believe the long-term story remains intact, yet short-term the shares are likely to see pressure given the sizeable downgrades.’

WHAT SHOULD INVESTORS DO NOW?

It is disappointing to see a profit warning, but macroeconomic headwinds are beyond management’s control and the business continues to take market share and maintain excellent customer service levels as reflected in an industry leading Trustpilot score of 4.8.

Despite current headwinds, the business remains profitable and has net cash on the balance sheet. The long-term story is intact and we remain positive on the shares. 

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