Shares in Wickes (WIX) rallied 9% to 234.4p after the home improvement retailer raised its adjusted pre-tax profit guidance for the year to December 2021 to ‘no less than £83 million’, comfortably ahead of the £74 million-to-£75 million analyst consensus range.

Spun out of Travis Perkins (TPK) in April this year, the DIY retailer cited resilient trading and a ‘strong margin performance’ for its latest upgrade, as it continues to benefit from buoyant conditions in the repair, maintenance and improvement market.

BALANCED BUSINESS MODEL

At the third quarter stage, Wickes guided to underlying pre-tax profit towards the upper end of a £67 million-to-£75 million range, so this is a material upgrade driven by a better than expected margin performance.

Led by chief executive David Wood, Wickes’ management has successfully mitigated the impact of rising inflation and freight costs, not to mention raw material supply constraints, thanks to the retailer’s ‘agile business model and strong supplier relationships’.

Liberum Capital understands that Wickes has also been able to pass through price rises to customers, ‘whilst still maintaining the group’s strong value credentials in the marketplace’.

Wickes said it has continued to perform well in the fourth quarter to date, ‘benefitting from our balanced business model, with sales in line with expectations’, and also highlighted a strengthening of Do It For Me sales.

Unsurprisingly given demanding lockdown-boosted comparatives, Wickes’ core sales are lower year-on-year, but they remain ‘materially ahead’ on a two-year basis driven by bumper demand from local tradesmen and underpinned by its digital TradePro loyalty scheme.

THE EXPERTS’ TAKE

Russ Mould, investment director at AJ Bell, commented: ‘Sales may have dipped a little year-on-year as the lockdown boom in home improvements made for tough comparative figures to beat, but they are still up an impressive amount on 2019 levels.

‘Higher costs and limited availability of raw materials and labour have been an obstacle to people getting all the domestic projects they want done and this could well create an extended period of pent-up demand – to Wickes’ benefit.’

Mould added: ‘And the same trends to working at home at least some of the time should also be a driver of continuing upgrades to properties.

‘The most recent housing figures from Nationwide showed the heart of the property market is still beating strongly and as part of the wider circulatory system Wickes should be well placed to take advantage of this trend.’

Following another very strong update that ‘highlights Wickes’ operational and supply chain agility in what has been a tough industry wide backdrop’, analysts at Liberum upgraded their 2021 pre-tax profit estimates for 2021 and 2022 by 12.6% and 11.2% to £83.2 million and £82.3 million respectively.

The broker also raised its forecast for 2023 by 10.5% to £89.4 million and upped its price target from 420p to 450p, arguing the current share price and equity rating are ‘far too cheap given the high-quality nature of the business, the strong trading momentum and net cash on the balance sheet of circa £170 million.’

Disclaimer: The author and editor of this story both own shares in AJ Bell Limited, owner and publisher of Shares magazine

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Issue Date: 03 Dec 2021