Investing in Marshalls at present - worthwhile purchase?
Marshalls PLC, a leading UK manufacturer and supplier of landscaping, building, and roofing products, has experienced a significant decline in its share price over the past few years. This downturn can be attributed to several factors, primarily challenging market conditions in the landscaping and construction sectors.
In 2022, the company's shares peaked at over 840p, but they have since dropped to 350p, a decline that continued into 2025. This dip can be linked to market overcapacity, softening demand, and pricing pressure due to increased competition and inflation in building material costs.
The largest part of Marshalls' business revolves around new-builds in the housebuilding sector, where demand has been subdued due to higher mortgage rates. However, a third of the company's sales come from commercial, infrastructure, and industrial production, where construction has already begun on a large number of projects.
Despite these challenges, Marshalls remains a well-run business. The quality of its operations is temporarily obscured by the UK construction backdrop. The company is an example of a company that does seemingly simple things very well, potentially offering great investment returns.
The global financial crisis in 2008 played a significant role in driving the boom in construction activity and Marshalls' success. Marshalls' products can be found at every location where building work occurs in the UK. However, in 2022, inflation spiked, causing increased conflict in the world, reducing the availability of raw materials, and obstructing supply chains. Central banks raised interest rates in 2022, which led to a reduction in demand for Marshalls' products.
Despite these challenges, there are signs of improvement on the horizon. The UK construction backdrop is expected to improve, making Marshalls a major beneficiary. Large-scale building projects are underway in the UK, which will benefit Marshalls. There might be a renaissance in the building of social housing, and around a quarter of the business sells to the housing repair, maintenance, and improvement subsectors, where expenditure is inevitable due to delayed activity.
Moreover, Marshalls' p/e ratio is currently around 20, which could fall to around 10 if there is a return to strong construction markets, particularly in housebuilding. A £10,000 investment in Marshalls' shares with dividends reinvested for 25 years (to September 2021) would have been worth £260,000, demonstrating the potential returns for investors.
The company has also implemented cost reduction and manufacturing optimization plans to improve profitability projected for 2026, but faces no near-term market improvements. However, with the expected improvement in the UK construction market, Marshalls may yet see a recovery in its fortunes.
- Investors might find the current state of Marshalls PLC, despite its challenging market conditions, an interesting opportunity due to its potential for great investment returns, as demonstrated by a £10,000 investment in 2021 that could have been worth £260,000 with dividends reinvested for 25 years.
- The decline in Marshalls' share price can be linked to various factors, including market overcapacity, softening demand, pricing pressure due to increased competition and inflation in building material costs, and the impact of higher mortgage rates on the housebuilding sector.
- In the stock-market, Marshalls' p/e ratio currently stands at around 20, which could potentially drop to around 10 if there is a return to strong construction markets, particularly in housebuilding, making it an attractive investment option for dividend seekers.
