Wickes thrives as an independent

It’s hardly surprising that do-it-yourself retailer Wickes (Wix) has fared well as a standalone business.

Former parent Travis Perkins (TPK) had been planning to demerge the 232-strong chain of DIY stores since 2019, allowing for each of the companies to focus on their own niches – the former serving larger building companies and the latter operating in the retail trade. Although the pandemic delayed plans, it also meant Wickes has ridden the ensuing home improvement wave.

Like-for-like sales for the group were up 33.1 per cent on the same period last year and adjusted operating profit doubled to £61.9m. It has been relatively unaffected by supply chain shortages and has managed to mitigate some cost pressures, while passing on others to customers for goods such as timber that have witnessed sharp increases.

Wickes has three main business lines. There is a retail arm that competes with the likes of Kingfisher’s (KGF) B&Q and Hilco Capital’s Homebase, a trade business aimed at local building companies and Do-it-for-me – a service offering to install products bought at the company’s stores.

All have performed well. Although Covid-19 restrictions affected the latter’s sales, they were still 20 per cent higher than a year ago. Pent-up demand means that lead times for work are extending, despite the company approving 350 new installation teams during the first half. It is also hiring and training its own apprentices to work as installers. Some jobs are already being pushed into next year, strengthening the 2022 order book.

A capital restructuring that took place ahead of the merger saw Travis Perkins repay inter-company balances of £123.5m, which helped Wickes to effectively bring net debt down by more than £100m to £564.8m. All of this is essentially lease liabilities, with £769m of future lease payments offset by net cash of £240.2m. 

The strong first half led chief executive David Wood to say its adjusted pre-tax profit for the year will be “towards the upper end” of analysts’ expectations, which range from £67m to £75m, assuming no further disruption from Covid-19.

The share price climbed by 2 per cent after it issued results, but remains below its listing price. Analysts at Peel Hunt said that at its current level, Wickes is valued at 11 times next year’s predicted earnings, which they argue is “too cheap” given the growth outlook. It’s a similar valuation to peers such as Kingfisher, though, in what remains a competitive marketplace. Hold.

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