Market's view on Marks Electric

Published on April 2024

  • MRK’s sales growth dropped significantly in Q4, with only a 2% increase compared to previous quarters and years that experienced much higher growth rates.
  • Despite the sales growth crash, the company’s share price remained stable, which caught some stock watchers by surprise.
  • The company’s EBITDA of £5.0m aligned with lowered forecasts but fell from the previous year’s £7.5m, indicating a decrease in profitability.
  • MRK’s decision to leave Euronics is expected to benefit revenue and margin in the medium term, but not short term, with concerns about the current inability to expand margins due to falling “average order value”.
  • The recent changes in sales and profitability metrics have led some watchers to speculate about the potential for further share price risks due to margin pressures.
  • Concerns were expressed about the company potentially entering a value trap scenario as growth seems to have stalled and market conditions toughen.
  • There were mentions of management’s efforts to put a positive spin on the company’s performance post-listing despite challenging conditions in the white goods sector.
  • Discussion included the impact of promotional events like Black Friday leading to lower margins for some retailers.
  • MRK’s marketing practices, particularly around “free delivery” conditions, were criticised for potentially breaching advertising standards.
  • The company’s gross product margins did not increase as expected, which had a significant impact on their profit guidance for the year.
  • A new law coming into effect in 2026 requiring retailers to collect broken or unwanted large electrical goods could impact MRK, although they currently charge a fee for this service.
  • MRK’s investor presentation highlighted strong revenue growth but acknowledged pressures from distribution and installation costs on margins.
  • The introduction of the company’s own installation service and inflationary pressures in distribution costs were noted as factors impacting margins, although these pressures are expected to ease in H2.
  • Strategic decisions, including the addition of integrated services and increased wages for delivery personnel, have impacted operating margins and profitability forecasts.
  • Some stock watchers remain optimistic about MRK’s market share gains and efficient cash flow management, suggesting potential for medium to long-term growth despite current challenges.
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