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Ambitious three-year targets could lead to significant uplift in firm’s value
Thursday 03 Jun 2021 Author: Ian Conway

Business services outfit Marlowe (MRL:AIM) has momentum behind its share price and operational performance and a credible plan to increase profitability and market share.

It is therefore an excellent time to snap up the shares as it embarks on a period of significant growth.

The last two trading updates from the safety and compliance specialist have lit a fire under the shares, with the company raising its full year earnings guidance and setting out an ambitious growth target.

Marlowe, which provides health and safety services, fire and security services alongside support on water treatment and air hygiene, compliance software and employment and occupational health compliance, revealed in May 2021 that thanks to better than expected second-half trading, operating earnings would be ‘in excess of £28 million’ against a top market estimate of £26.5 million.

In addition, the firm noted it had made three small bolt-on acquisitions in the fire safety, occupational health and water treatment sectors, and this week it reported it had bought another fire safety and security firm.

Previously, at its capital markets day in February, the group presented a three-year plan to double its revenue from £245 million to £500 million and almost treble its earnings before interest, taxes, depreciation and amortization (EBITDA) from £37 million to around £100 million.

The firm sees organic revenues growing by 7% per year, which would add another £50 million to the total, with the rest of the increase coming from a ‘step-change’ in acquisitions to increase scale in existing and adjacent markets.

Meanwhile, part of the increase in EBITDA will be driven by the doubling of turnover, but part is also expected to come from raising the group margin to 20% against its current level of around 16% thanks to synergies from acquisitions and lower costs from its digital strategy.

The firm believes its target addressable market in the UK alone is worth £6.8 billion, led by the fire and safety sector which is estimated at £1.7 billion but is fairly low-growth. However, of more interest are the employment law, HR and occupational health sectors, which are worth a combined £1.8 billion and are growing at around 6% per year.

Analysts at Berenberg estimate Marlowe will generate £40 million of its three-year target of £100 million of EBITDA via acquisitions, which assuming the deals were struck at a multiple of 7.5 times would mean £300 million of spending, requiring £120 million of equity raises.

However, with £100 million already raised, ‘the business has the majority of the necessary firepower to reach this target’, they say.

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