While it may be one of the least melodious words to spring from TV advertising, “housebarrassment” is memorable — possibly more memorable than the name of the Wickes DIY chain it promotes.
But it nails one driver behind the still-buoyant property improvement market: the desire to have a presentable home.
At yesterday’s annual meeting, the first since the company demerged from Travis Perkins a year ago, shareholders heard trading was in line with expectations so far this year, despite group like-for-like sales being down 0.6 per cent on a year ago. That is quite a tough comparison, as DIY was then still being boosted by lockdown demand. The company prefers to draw attention to the 22.4 per cent sales rise over the past three years, going back to before the pandemic struck. “We have reasons to be cheerful,” the chief executive, David Wood, said.
That 0.6 per cent dip contains a significant clue to Wickes’s prospects, as it owes much to the increasingly important DIFM (do it for me) market, consisting of hitherto neglected customers who want help. Strip them out, and core sales to DIYers and traders fell 7.2 per cent.
But the industry is waking up to the huge potential from the majority of households occupied by those who do not know, or want to know, one end of a spanner from the other.
The difference is that the DIFM service is supplied directly by the retailer. Wickes has only 231 stores, but 2,700 teams who mainly take a project all the way from concept to installation. And you can bet that those initial chats on the sofa generate a few extra ideas. Consequently, DIFM-delivered sales were up 30.9 per cent in the first 20 weeks of 2022, and the order book has doubled in the past year. A quarter of local traders are taking orders for delivery in a year’s time, indicating the all-round strong demand for home repairs.
This is changing the traditional image of DIY and hardware stores, at a time when several trends are helping the industry. The UK has an ageing housing stock and property sales prompt home improvements, while climate change and soaring energy costs are encouraging spending on double glazing and insulation. While B&Q leads the market, its virtues are wrapped up in the much larger Kingfisher retail group. Wickes gives investors direct exposure to developing trends, such as the growing inclination to treat back gardens as an extension of the home. Hence the fondness for decking and conservatories.
Broking analysts are lining up to sing the company’s praises. Kate Calvert at Investec says: “We believe the transformation of Wickes into an integrated digital and service-led business is underappreciated, with the market missing the material bounce back in profits to come.”
Travis Perkins bought Wickes in 2004 for £950 million, nearly twice the present market value, but was never entirely comfortable with retail. The demerger, in which Travis shareholders were given Wickes’s shares, created a phalanx of US investors who have gradually been selling. That has smothered the share price, taking it down to 159p, but it looks as though the US withdrawal is virtually complete and the shares have benefited accordingly.
One slight concern is that Wickes’s ebullient chief executive sees no downsides, which means he could be taken unawares down the road.
Nevertheless, the present price is still not looking too far ahead. Calvert predicts steady rather than spectacular growth, pre-tax profits rising from last year’s £85 million to £96 million by the end of 2024, on the back of a 14.6 per cent sales increase to £1.76 billion by then. The prospective normalised p/e ratio for this year is an unassuming 6.9, paving the way for a solid-looking 5.8 per cent dividend yield.
ADVICE Buy
WHY The share price does not fully reflect how well-positioned the business is to exploit housing market trends
Purplebricks
At 17½p, down 2.8 per cent yesterday, Purplebricks shares represent one of the biggest gambles on the stock market. A year from now it could look as if it was ridiculously cheap, or an excellent time to sell.
The company, a groundbreaking online estate agency, has been through a torrid time which provoked a change of top personnel a couple of months ago. That new management, led by Helena Marston, has set itself a deadline of July 12 to announce what will be awful full-year figures accompanied by a blueprint for recovery. Everything hangs on that blueprint.
Marston gave a taste of the poor results on Wednesday, with a trading update that predicted £70 million sales for the year to the end of April and an £8.8 million annual loss. It is a measure of how low expectations were that the shares did not react by more than they did. They have been languishing either side of 20p since the turn of the year, a long way from the 500p they touched nearly five years ago.
In those heady days, the business was said to “have taken the buying and selling of houses by storm”, and was exporting its techniques to the US and Australia. But within two years it was decamping from those far-off lands and changing the chief executive while analysts were rushing out sell notes.
That £8.8 million loss includes plenty of housekeeping costs, chief of which has been to turn its self-employed agents into staffers who can be fully trained and monitored. But Marston, whose background is in human resources and had no property experience prior to joining Purplebricks two years ago, will have to come up with considerably more than that. She has one of the few national estate agency brands to build on, with leading market shares in parts of the country, and a price proposition that undercuts many local rivals.
However, she will be doing well if Purplebricks can make a profit in the current year, and potential investors will want to see a convincing path into 2023 and beyond.
ADVICE Avoid
WHY Investors will need evidence of a workable plan
