I’ve been looking at recent IPOs (initial public offerings) to see if any of them are buys for my portfolio. I think this UK stock is an exciting prospect after it listed on the Alternative Investment Market (AIM) this month.
Sometimes after listing, shares can run up in price too quickly as investors that missed the IPO buy the stock. I wrote about Darktrace recently and how I thought its share price did exactly this. Then there are times when early-stage and pre-profit companies list to raise equity capital, but unfortunately aren’t successful.
I don’t think this IPO fits either of these situations. So, let’s see if this UK stock is a buy for my portfolio.
An exciting UK IPO
The company I’ve been looking at is Marks Electrical (LSE: MRK). Its shares listed on AIM in November at a price of 110p. As I write today, the current share price is 118p. This hasn’t had the euphoric rise like Darktrace did, so the shares might still be good value.
Marks Electrical was founded in 1987 by the current CEO. The company has also been profitable for at least the last three years. I think this means there’s little risk in Marks Electrical completely failing after its IPO.
So, what does the company do? Marks Electrical sells, delivers, installs and recycles large electrical items in the home.
Its vertically integrated and customer-focused strategy I think differentiates the business. This is because Marks Electrical owns its own distribution network, operating out of its Leicester headquarters. This central location, and owning its delivery vans and employing specialist drivers, means it can offer customers free next-day delivery and installation services.
Its high customer reviews I think signals that its business model is working as intended, and its distribution network is key here.
Recent results
Because Marks Electrical has only just listed, the amount of financial data I can see only goes back three years. Over this period, revenue has grown from £31m in 2019 to £56m for the full year to 31 March 2021. This is exciting growth.
The company has benefitted greatly over the pandemic as customers chose to spend more on big household items. Indeed, in the six months to 30 September 2021, revenue grew again by an impressive 78%. As the business is a pure-play online offering and physical stores have been disrupted due to the pandemic, I don’t expect this stellar growth rate to be maintained. There’s also the risk of supply chain disruption right now, though management have been able to navigate this well with its suppliers.
Is it a buy?
I do like the look of this IPO. It doesn’t have the risks of some new listings, and the founder-CEO still owns a significant stake in the business. The company has taken market share over the pandemic of the over £5bn domestic appliance market (this increased again in the recent half year results to 1.5%, up from 1.2% in March). I expect this can increase further as shopping habits permanently shift online.
For now, I’m going to place this UK stock high on my watchlist to see how the growth rate stabilises. There are other growth stocks to consider right now.
Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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