Income play Wickes tipped to keep growing

A view of Wickes Group (LSE:WIX) as “a coiled spring” ready to capitalise on an upturn in the £27 billion home improvement market was today reinforced by the DIY and trade chain’s annual results.

Adjusted profits of £43.6 million were 16% lower but at the upper end of expectations, underpinned by growth in volumes and like-for-like sales in the Retail division.

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The project-based Design & Installation arm had a tough year after underlying sales fell 13.9%, offset by a recent first quarter of ordered growth for the first time since mid-2023.

Shares in the FTSE All-Share company rose as much as 8% Thursday to equal February’s peak, which is the highest price seen since June 2022.

The stock offers a 6.5% dividend yield and is valued at about 11 times forecast 2025 earnings, representing a slight discount to B&Q owner Kingfisher (LSE:KGF) and FTSE 350 retailers.

Broker Peel Hunt rolled forward its price target to 210p, pointing out that the company’s strategy continues to deliver volume and share growth in a “market offering no favours”.

It added: “The group remains a coiled spring, ready to capitalise on better market volumes with significant operational gearing and strong cash conversion.”

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Wickes told investors today that it believes there’s a significant opportunity for long-term growth, given the company’s relatively small market share of around 6%.

It said: “The challenging trading conditions of the last two years have resulted in the exit of retailers such as Homebase, Carpetright, CTD Tiles and Wilko, presenting an opportunity for strong businesses of scale, such as Wickes.

Wickes points out that the market has grown at about 2.5% per year on average over the past 10 years, driven by the high average age of the UK’s housing stock, the rising number of UK households and increasing home ownership.

Helping customers improve their energy efficiency is a major growth area given that Britain’s 29.8 million homes lose heat up to three times faster than in continental Europe. A stronger property market is also positive for Wickes if it leads to more improvement projects.

Deutsche Numis has been cautious on the market since early 2023 given concerns on the outlook for UK consumer spending and fading benefit from inflation on revenue growth.

Five years on from the industry’s pandemic boom, it wrote this week that there are signs that big-ticket home improvement may be starting to turn and that DIY indicators “leave us incrementally more constructive” on the earnings outlook at Wickes.

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The bank said higher wage costs present a headwind but that these look to be largely reflected in the City’s 2025 profit expectations.

Wickes, which has 228 stores and an active TradePro membership of 581,000, said changes to National Insurance rates and thresholds are expected to add £6 million to its direct costs on an annualised basis.

It intends to seek further productivity gains to offset this headwind, as well as the significant increase in National Minimum Wage planned for next month.

The company said: “The actions we have taken across the business to invest in our growth levers and productivity position us well for 2025, notwithstanding the uncertain market outlook for larger ticket purchases and the continued cost headwinds.”

A final dividend of 7.3p is due to be paid on 6 June, giving an unchanged total of 10.9p for the year. Wickes has returned £41.1 million to shareholders in the year from dividends and completion of a £25 million share buyback.