PAUL SCOTT comments - Stockopedia - WIX15 Nov 2021 14:19
Oct 27, 2021 by Paul Scott
Conclusion
Declining 2Y trends or not, this is still a double digit 2Y improvement and it means Wickes is on course for PBT at the upper end of £67m-£75m. That values the company at just 7.8-8.8x profit before tax.
The group has strong brand recognition and appears to have built up a fairly unique market position, with its DIFM line particularly hard to replicate. It is cash generative with a healthy and well-invested business and a strong digital presence that has served it well over a difficult period. So if there is to be a UK renovation boom, then at the current valuation, Wickes looks well placed to benefit and perhaps even take market share.
There are cost inflation pressures, as with a lot of operators, but there is also healthy demand from a large and growing home improvement market. I think the shares look good value given the outlook, although the usual caveats concerning recent listings remain. The good news with that though is that there will be a wealth of material in the recent prospectus to dig into.
It’s a particularly difficult time to gauge companies’ prospects at the moment. Wickes management refers to it as a ‘dynamic’ environment, which means there are all sorts of competing factors at play. Cost inflation, logistical logjams, spiking demand, and varying abilities to meet that demand.
The company is flagging a moderating trend in 2Y growth rates, so that must be considered. Again though, I come back to the valuation. This alone makes Wickes worth looking at in order to more deeply assess its outlook, as a net positive environment and continued earnings increases could lead to good upside over time.
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