Wickes pre-tax profit halves due to administrative costs

On its own terms, Wickes' (WIX) £7.4mn IT cost was a small price to pay for its divorce from Travis Perkins. However, when combined with a hike in other backroom costs, including IT investment, bonus payments and "modest inflation in support centre costs", it added up to £20.8mn. It was enough to slash its pre-tax profit for the six months to 30 June by almost 40 per cent.

The fact dividend payments remained at 3.6p per share is perhaps a sign Wickes is confident in its underlying performance. After all, revenue did grow – albeit marginally. The drop in DIY sales was offset by growth in what the company calls “DIFM” (do-it-for-me), whereby customers who buy items such as kitchens and bathrooms get them built as a service.

Wickes believes things will improve, saying it is “comfortable with FY consensus expectations [of] adjusted pre-tax profit of £45mn to £48mn after the impact of SaaS IT investment costs”. According to the consensus of analyst forecasts from FactSet, pre-tax profit will grow to £66mn by the end of 2025, while earnings per share will reach 21.1p. It would give the stock a price to 2025 forecast earnings ratio of 6.7 times, which is good value if those forecasts prove correct.

The big bear point is that its net debt is 293 per cent of its equity. The bulk of its liabilities are its leases for shops, which enables it to trade, but Wickes is aware of its need for a healthier balance sheet and is filling up its coffers with cash accordingly. It's a prudent move and a trend we hope will continue. Buy.

Last IC View: Buy, 143p, 23 Mar 2023