Market share gains and efficiency drive cash flow
Results confirm 24.8% sales growth to £53.9m in H1, and despite lower EBITDA margins, Marks Electrical converted 145% of operating profit into cash (vs. 118% for the whole of FY2023), enabling a 0.30p unchanged interim dividend.Margins, as expected, were reduced by the strategic decision to add integrated gas, electrical and television installation services to its next day delivery service, and increased wages for the company’s drivers. As a result, EBITDA margins were two percentage points lower than a year earlier at 4.3%. Importantly, gross product margins were almost unchanged – i.e. products were not discounted.
Market share improvements in both Major Domestic Appliances (MDA) and Consumer Electronics (CE) demonstrates the success of the company’s strategy. In H1 MDA share rose to 2.9% from 2.4%, while CE share increased from 0.3% to 0.5%. For online only, the MDA share was 5.4% and CE 0.9%. Given the substantial headroom the company enjoys in terms of awareness and reach, that over 1 in 20 UK online MDA orders are already put through Marks Electrical appears impressive.
Operating efficiency in terms of overhead costs improved in the six months. Inventory days reduced to 64 in FY2024H1 from 82 days a year earlier, and net cash rose by £0.9m to £10.9m in the past 6 months. The company generated a still impressive 37% return on capital employed in FY2024H1. With sustained robust sales growth, driven by consistent market share increases from an already meaningful level online and strong cash conversion, we retain our 150p fair value.
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