Wickes shares look "too cheap" after strong fourth-quarter trading

(Alliance News) - Analysts said they think Wickes PLC shares look too cheap after the firm upgraded guidance in an unscheduled trading update on Friday.

The Watford, Hertfordshire-based company lifted its full-year adjusted pretax profit guidance to no less than GBP83 million. The building supplies retailer noted that market consensus lies around GBP74 million to GBP75 million. The company booked half-year adjusted pretax profit of 46.5 million.

Friday's upgrade came after a strong performance in the fourth quarter to date. Core sales were lower year-on-year against tough comparatives, but remain materially ahead on a two-year basis, the company noted.

Wickes boasted that its business model and strong supplier relationships have led to a better-than-expected margin performance, as it has been able to mitigate inflationary pressures.

"Our forward planning and early strategic decisions have resulted in an improved profit performance, and we continue to navigate inflationary pressures and raw material constraints well. Clearly, this remains a time of uncertainty, however our differentiated business model leaves us well-placed to continue to outperform within a large and growing home improvement market," said Chief Executive David Wood.

Brokers Liberum and Peel Hunt both agreed that the stock is priced to move.

Calling the update "very strong", analysts at Liberum noted Wickes performance has been driven by better-than-expected margins.

"We understand this includes successful pass-through of price rises to customers, whilst still maintaining the group’s strong value credentials in the marketplace," said Liberum.

The shares continue to look "far too cheap" given the growth, profit momentum and strong cash generation on offer, it added.

Peel Hunt, which also thinks Wickes's valuation looks undemanding, said the latest guidance is 10% ahead of its estimates.

"Although [financial 2022] and [financial 2023] numbers are likely to remain unchanged, the shares simply look too cheap to us," said Peel Hunt.

Both brokers retained their Buy rating on the stock, with Liberum raising its price target to 450 pence from 420p.

Shares in Wickes, which demerged from Travis Perkins PLC earlier this year, were up 13% to 243.40p in London midday trade.

By Lucy Heming, lucyheming@alliancenews.com; and Will Paige, willpaige@alliancenews.com

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