1X2 Paul Scott Stockopedia comments. - WIX25 Jul 2023 14:39
Q2 LfL sales improved to +3.0% (was -1.8% in Q1), still well below inflation though.
H1 LfL sales were +0.7%
I can’t see any benefit from the company splitting out “core” and “DIFM” (do it for me) sales figures.
Inflation - it’s not entirely clear if this is talking about input cost inflation, or selling price inflation? Probably selling prices I would guess -
Inflation continues to slow, in line with our expectations, falling from 9% in the first quarter to 4% in the second. Wickes continues to retain its strong price position relative to the sector.
Cost inflation - sounds reassuring -
Costs remain well controlled, with savings flowing through as expected in distribution, logistics and store operations.
It doesn’t say anything about gross margin, which is surprising. I would imagine that importing a large quantity of bulky items would have seen big benefits on margin through reduced sea container freight.
IT spending - big upgrades are planned, and it says this will mostly be expensed through the P&L, rather than capitalised -
IT project investment is anticipated to be c.£17m in FY2023 and grow to c.£25m per year from FY2025…
The impact of this switch from capex to opex for some investment costs will have no effect on future cash flow. For four years PBT will be reduced until the higher IT opex is fully offset by lower IT amortisation costs. We estimate the impact on PBT to be £8-10m in FY2023, £6-11m in FY2024, £4-7m in FY2025 and £1-3m in FY2026;
That’s obviously going to result in broker forecasts dropping, or they might have already factored this in? I can’t find any broker research unfortunately, so am in the dark on this point.
Capital allocation - various points made, including saying that it won’t need to use its RCF, expects to be in net cash throughout the year. More scope for paying divis, by adopting a broader range of dividend cover from 1.5x to 2.5x adj EPS (previously 2.5x cover).
Dividends - maintaining 10.9p total divis for FY 12/2023, giving a sparkling 8.1% yield.
Intention to hold the payout at 10.9p until cover returns to normal. There’s obviously some risk there, that a downturn in trading could scupper future divis, but they say they’re confident.
Share buyback of £25m announced today - that’s a lot, coming on top of a generous yield, and for a £350m market cap that implies buying back about 7% of the existing shares.
Paul’s opinion - I think this is really encouraging, and the big yield + meaningful buybacks, reinforces that this is a decent business, well financed, and whose shares seem cheap.
It’s one of my favourite value shares, and that remains the case, so a thumbs up.
Let’s hope the diversity & inclusion manager keeps his trap shut in future! Most people don’t want companies to broadcast their virtue-signalling. Just treat everyone fairly, and then there aren’t any problems either way. And never, ever, insult your customers
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