Marlowe still buying and building

The largely unconsolidated market for health & safety support, employee human resources and in-house training has proved to be a fertile hunting ground for Marlowe (MRL). The company plans to continue its rapid expansion after raising £177mn from two equity placings earlier this year for further acquisitions, although the regular rate of these makes prior-year comparisons difficult. The company’s basic premise is that corporate clients will pay for a “one stop shop” for HSE, legal and compliance advice in preference to the often ad hoc and fragmented way that is the norm within the sector.

Marlowe’s biggest acquisition was the £135mn it shelled out for Optima Health in January, one of 20 during the year in which it deployed £316mn of capital. Optima Health now forms part of Marlowe’s occupational health division and added £68mn of sales to the group total, along with approximately £11mn to cash profits for the year. Management said it hoped now to move to financing its growth with internal resources, rather than necessarily using debt or equity. Yet the company has agreed a new three-year revolving credit facility of £180mn, with optional access to a further £60mn, if needed.     

With Marlowe it is a case of trying to predict when the owners will want to sell out after pursuing a 'buy & build' strategy for the past couple of years. The problem from a valuation point of view is that everything has collapsed around Marlowe, leaving the forward PE ratio of 15 looking cheap, but not the cheapest available. That said, if it continues with acquisitions then that will be reflected in its book value. Buy.

Last IC View: Buy, 930p, 1 Dec 2021