The do-it-yourself chain Wickes started trading as an independent FTSE 250 company last week, after demerging from the building supplies company Travis Perkins. The split was meant to take place last year but was put on hold in March 2020 as the first wave of the pandemic sent markets spiralling.
Travis Perkins had been aiming to offload Wickes through a sale or demerger since 2018, after profits slid as DIY fell out of favour with a younger generation of homeowners. However, despair was premature, as Britons of all ages took up home improvement during the lockdowns. According to research by Wickes’ rival B&Q, 86 per cent of people took on a DIY project between March 2020 and March 2021.
So Wickes, which sells to trade customers as well as amateurs, finds itself starting life as a listed company with the wind at its back: like-for-like sales rose 19.7 per cent in the first quarter, according to its final trading update as part of Travis Perkins.
The housing market is booming, despite the economic damage caused by the pandemic: there were more than 180,000 property sales in March, according to HMRC, the highest monthly total since records began in 2005. Prices rose by 8.6 per cent compared with the year before.
While house sales are likely to steady after the stamp duty holiday ends at the end of June, renovations are expected to continue as people who have moved put their mark on their new home. More working from home also means more wear and tear and people paying closer attention to what their house looks like and the best use of space.
Among those who have been able to keep working throughout the pandemic, there is a considerable pool of savings available for new kitchens and bathrooms, after a year with few opportunities for spending. The Office for Budget Responsibility estimates that the amount of cash in British bank accounts will have risen by £180 billion between the start of the pandemic and June 2021.
Even if millennials ditch DIY and return to spending all their weekends on mini-breaks, analysts note that Wickes is expanding its “do it for me” business, with services such as fitted home offices. It also has trade customers, with 580,000 people registered for its TradePro app, according to analysts at Liberum.
The company estimates that about two thirds of sales start from its digital channels as customers increasingly research products online or use click and collect. Wickes has 233 shops and is able to dispatch online orders from them.
What are the downsides? There is always a degree of uncertainty in the fortunes of the home maintenance and repair market because it is so closely tied to the housing market and the overall strength of the economy. In addition, competitors such as B&Q and Screwfix, owned by the FTSE 100-quoted Kingfisher, have also been boosted by the renewed interest in home and garden improvements over the past year, and changed shopping habits have spurred Kingfisher’s development of its online channels.
Wickes had £1.35 billion of revenue in 2020 and operating profit of £82 million. Analysts at Peel Hunt forecast three-year revenue compound annual growth of 5.5 per cent, and earnings per share of about 25p by 2023. They rate the shares a buy, with a target price of 310p. Analysts at Liberum said Wickes has indicated it will pay about 30 per cent of its adjusted profit after tax as a dividend, and they estimate a dividend of 5.1p per share this year.
Every share held in Travis Perkins entitled the owner to one share in Wickes, whose shares listed at 270p last week and closed down 2½p at 237½p yesterday. While the home improvement mania continues, Tempus rates Wickes as a buy.
ADVICE Buy
WHY DIY is a national pastime once more and many homeowners have savings to spend
Virgin Money
Virgin Money UK joins the British banks reporting good news and has returned to profit in the first half of its financial year. Profit before tax was £72 million for the six months to the end of March, compared with a £7 million loss for the period last year.
The main reason was a significantly smaller provision for loan losses, with an impairment charge of £38 million for the half year, down from £232 million last year, as a result of the improved economic outlook for the UK and continued government support for businesses. Virgin Money also increased its guidance for net interest margins, a measure of profitability, for the full year to 1.6 per cent.
However, investors were disappointed and the shares fell as low as 184p yesterday before recovering to close down 1.2 per cent or 2½p at 198¼p. Analysts at Goodbody pointed to higher-than-expected operating costs both in the first half — £460 million, compared with market forecasts of £443 million — and for the full year, with Virgin Money estimating operating expenses of £890 million, compared with previous guidance of £875 million for the year.
One-off costs of £173 million in the first half, including £59 million related to PPI, were also “very high,” the analysts said. Charges related to the payment protection insurance mis-selling scandal have dragged on Virgin Money for years. The bank was created when CYBG, owner of the Clydesdale and Yorkshire banks, bought the smaller Virgin Money for £1.7 billion in 2018.
Virgin Money did not pay a dividend last year and did not announce one for the first half. The bank said it would be guided by the results of the Bank of England’s solvency stress tests later this year and its impairment outlook before deciding on whether to resume dividend payments to shareholders.
Tempus last wrote about Virgin Money in October, rating the shares a buy when they were trading at about 80p. Since then they have more than doubled, and we now change our recommendation to hold. Analysts at Shore Capital estimate the fair value of the shares at 185p and rate them a hold.
ADVICE Hold
WHY The shares have already had a strong run this year
