New premium listing/demerger: Wickes

Builders merchant Travis Perkins has demerged the Wickes home improvement retail business. This is an area that has held up well during lockdowns. Trade demand was reduced, particularly last spring, but there was more DIY spending.

The underlying market has been growing consistently and this should continue. Wickes is in a good place to take market share.

At the Travis Perkins general meeting to approve the demerger, 44.7% of votes were cast against the Wickes share plans. These involve transitional awards to executive directors of Wickes. The ISS had advised shareholders to vote against the resolution, but that was changed to a qualified for recommendation after discussions with Wickes.

The directors’ remuneration policy will be voted on at the Wickes AGM. This vote will be binding – as it said in the demerger prospectus. However, this is not a good start as a listed company.

The shares opened on the first day at 250p and rose to 288.4p before closing at 263.9p. That means that they are trading on 17 times the 2020 underlying post-tax profit. That was a period where trading was disrupted by Covid-19, so the rating should come down this year.

Wickes is exposed to a growing market for home improvement, and it should prosper as an independent entity. Long-term buy.

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Wickes Group (LON: WIX)

Home improvements retailer

www.wickesplc.co.uk

Market: Premium listing

Demerger

Flotation date: 28 April 2021

Opening price: 250p

Amount raised: nil

Expenses: £5m

Market capitalisation: £630.4m

Sponsors: Citigroup / Deutsche Bank

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What does it do?

Travis Perkins acquired Wickes from Focus Do-It-All in 2004 and initially decided to demerge the business in 2019. Travis Perkins shareholders were issued with shares in Wickes.

Wickes is a UK-focused home improvements retailer with 233 stores and re-fits of these sites are continuing. Last year, sales were £170 per square foot in older format stores and £227 per square foot in those that have been re-fitted.

Customers are segmented into local trade, do-it-for-me projects and do-it-yourself (DIY). There is a TradePro app for local trade and a DIY app will be launched during the summer. Online trade has become increasingly important.

The addressable market is estimated to be worth £25bn a year and it could reach £28bn by 2024-25.  

Financials

Between 2013 and 2019, revenues grew from £972m to £1.29bn. In 2020 revenues were £1.35bn – like-for-like growth of 5% – and underlying pre-tax profit £49.5m, down from £62.3m. These profits exclude the restructuring and impairment costs ahead of demerger. There was a non-cash dividend of £176.8m in 2020 as part of the restructure.

During the original lockdown, click and collect and deliveries carried on. Since May, the stores have been open. There was like-for-like sales growth of 19.7% in the 13 weeks to 27 March 2021. A reduction in space meant that the overall growth for the period was 18.9%. Easter trading remained strong.

The plan is to pay combined interim and final dividends equivalent to 30% of adjusted annual profit after tax.

Net debt was £598.4m, which includes lease liabilities of £790m. There was a subsequent cash inflow of £156.1m from the settlement of intercompany balances.  There is an £80m revolving credit facility. Pro forma net assets are £94.8m.

Directors

Christopher Rogers (Chair)

Annual fee: £185,000

David Wood (Chief executive)

Annual salary: £495,000

Julie Wirth (Finance director)

Annual salary: £350,000

Mark Clare (Senior independent non-exec)

Annual fee: £72,500

Sonita Alleyne (Independent non-exec)

Annual fee: £65,000

Michael Iddon (Independent non-exec)

Annual fee: £65,000

Shareholders

The shareholder base will be the same as for Travis Perkins on 27 April. BlackRock, Investec, Ninety One UK, Harris Associates, OppenheimerFunds and Sanderson Asset Management will each own around 5%.

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Andrew Hore
Andrew Hore is the publisher of AIM Journal, which is an online monthly publication covering the Alternative Investment Market.