Shares in DIY retailer Wickes (WIX) have begun trading (28 Apr) as a stand-alone business on the London Stock Exchange (LSE) following its Covid-delayed demerger from Travis Perkins (TPK), a deal which saw the erstwhile parent’s shareholders receive one Wickes share for each Travis Perkins share owned.

Wickes operates in a fragmented and structurally growing market, yet home improvement is also fiercely competitive and the company is lapping tough comparatives, while delivery costs are weighing on margins.

DIY BOOM

Like-for-like sales grew by 5% in 2020 as Wickes rode the stay-at-home DIY boom alongside rivals such as Kingfisher’s (KGF), while like-for-like sales rose 19.7% in the first quarter of 2021.

Admittedly, the helpful work-from-home trend has peaked. However DIY activity could remain robust given the focus consumers now place on their homes.

As Wickes’ CEO David Wood recently explained, the past year has ‘prompted many of us to think differently about our how we use our homes, and as a result, we are seeing strong demand from customers who are looking to make changes to their living spaces’.

Trade sales should recover into 2021 as the strength in housing transactions looks set to continue. Wickes should also profit from pent-up ‘Do It For Me’ (DIFM) demand as consumer confidence improves and excess savings are redeployed into big ticket kitchen and bathroom purchases.

DIGITAL DISRUPTOR

Liberum Capital notes that Wickes’ transformation since 2013 has driven sales growth of 2-3%, roughly in line with the 2.5% growth of the wider home improvement market. And during this time, the retailer’s digital proposition has been ‘significantly improved and the estate partially refitted’.

Over this period, Wickes sales have grown as the DIFM service proposition and its TradePro mobile app for trade members have gained traction.

In addition, its small store model and engaged workforce have ‘underpinned sector-leading margins, and its curated and focused product range give it a sector-leading stock turn’, says Liberum.

Despite last year’s pandemic disruption, Wickes generated an adjusted operating profit of £82 million on revenue of just shy of £1.35 billion last year. Digital customers almost doubled in 2020,    its click-and-collect orders rocketed 450% higher for the year and home delivered sales increased by 120%.

Forecasting a robust 7.5% profits compound annual growth rate for the years 2020-2023, Liberum believes there is upside risk to its estimates ‘driven by RMI momentum and self-help’.

Risks include an overhang, if Travis Perkins investors offload shares in the demerged entity in numbers, or a failure of the pent-up demand for kitchen and bathroom installations to translate into the sales Wickes is looking for, leaving profit shy of forecasts.

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