Corporate awareness of the need for fire protection is at an all-time high, says Alex Dacre, chief executive of Marlowe (MRL:AIM), a support services business enjoying rapid growth.

Increasing health and safety awareness results in stricter legislation and puts more pressure on organisations to make sure the occupants of their buildings are safe.

That’s driving earnings growth at Marlowe which installs, tests, inspects and certifies complex fire systems to make sure they are working and comply with legislation. It does the same with water and ventilation systems.

Insurers increasingly demand businesses use specialists like Marlowe to do the safety checks.

It’s no wonder that Marlowe is a) doing so well and b) eager to expand its business further with more acquisitions. Full year results on 25 June showed 72% increase in revenue to £80.6m and 74% rise in adjusted pre-tax profit to £5.8m. We think this is a superb stock to own, so buy now.

IMPROVING MARGINS

Marlowe’s operating profit growth lagged revenue growth in its fire and security arm in the past financial year as it bought some companies with lower margins compared to Marlowe’s existing business. Dacre says these margins are now picking up thanks to better operational efficiencies.

A move into the ventilation industry has already proved to be a good move with lots of existing fire and water service customers also handing ventilation work to Marlowe.

This desire to cross-sell services to the same customer base is likely to take the group into new markets. Dacre hints that refrigeration and air conditioning could be the next areas of interest. ‘Air conditioning is a critical service for many organisations such as hospitals, food producers and hotels. Regulation is driving the need for services,’ he comments.

Other potential areas of expansion include risk management, asbestos surveying and testing for hazardous materials. Following investigations, Marlowe has now ruled out entering the lift maintenance market, saying the margins weren’t good enough.

Net debt is currently £4.5m after accounting for two acquisitions post year-end. Finance director Mark Adams says the business has £18m of debt facilities, meaning there is scope to fund more bolt-on acquisitions without raising cash by issuing shares.

This story isn’t all about acquisitive growth. Marlow achieved 4.5% organic growth in the year to 31 March 2018; of this 1.5% came from cross-selling, a figure which it expects to be higher in the new financial year.

The shares trade on 26 times current year forecasts, dropping to 22.3-times next year. We’re comfortable with a high share rating given the defensive nature of its business and scope for decent earnings growth as it mops up smaller rivals, improves their margins and cross-sells services to clients. (DC)

‹ Previous2018-06-28Next ›