Berenberg on initiates coverage on Marks Electrical at 'buy'

Berenberg said on Tuesday that with a "substantial market opportunity, clear competitive advantages, and additional "growth levers" to pull, it believes Marks has "a significant growth runway" ahead of it.

"Marks has additional levers to pull that can support its continued rapid growth. Firstly, brand awareness in the UK is still low at just 7%, but we show that the company’s increased marketing investment is bearing fruit, with Google Trends data showing a strong and sustained improvement over the past two years (while peers’ data has deteriorated). Secondly, Marks is still relatively nascent in its expansion outside of its core MDA category. We think it has a potential opportunity to expand into new product categories over the next few years, with peer disclosures suggesting that an attractive cross-selling opportunity is available. Thirdly, Marks is increasing the number of credit options available on its platform, which can support conversion rates," said Berenberg.

The German bank, which issued the stock with a 120.0p target price, added that Marks' streamlined operating model also resulted in a margin, return on invested capital, and cash-generation profile that was "rare" among high-growth e-commerce companies.

"Marks' streamlined and capital-light operating model underpins a high-single-digit adjusted EBITDA margin, a circa 50%-plus ROIC, strong FCFE generation (positive in each of the past four years), and in turn a 20% dividend payout ratio – all rare traits for a high-growth e-commerce company," said Berenberg.

Reporting by Iain Gilbert at Sharecast.com