Wickes Group PLC (LSE:WIX, Financial) is a home repair and improvement retailer, selling to customers across the United Kingdom. Its three key customer propositions are the local trade, do-it-yourself and do-it-for-me.
The company operates from its network of 232 stores, which support nationwide fulfillment from convenient locations throughout the U.K and through its digital channels, including its website and mobile app for trade members and its DIY app. These digital channels allow customers to research and order an extended range of its products and services and arrange virtual and in-person design consultations. The company’s portfolio includes kitchens, bathrooms, garden maintenance and decorating areas, building supplies, tools, timber and sheet materials, doors, windows, flooring and tiles, painting, loft conversions, driveways, joinery, landscaping and glazing categories.
The original Wickes business dates back to 1854 and was started in Michigan, USA. The first UK store opened in 1972. Wickes is currently headquartered in Watford, the United Kingdom.
Wicks was spun off of buildings products distributor Travis Perkins PLC (LSE:TPK, Financial) in April 2021 with no financial debt. Management uses free cash flow to grow the business and pay a dividend (currently with a 9% yield). The stock trades at an attractive upside-to-downside ratio and a price-earnings ratio of approximately 5. The U.K. home improvement market has good prospects of steady growth given the aging housing stock, which is in constant need of maintenance, as well as steady population growth.
The stock price has come down over 50% since its initial public offering last year.
The following table compares Wickes with other home improvement retailers, all of which are much larger than it. While Wickes' price-earnings ratio and free cash flow yield compares favorably with the competitive set, the debt-to-equity ratio is very high.
| Ticker | Company | CurrentPrice | Market Cap($M) | DividendYield % | Debt-to-Equity | PE Ratio(TTM) | FCF Yield % | Price-to-Operating-Cash-Flow | PB Ratio | EV-to-EBITDA |
| (LSE:WIX, Financial) | Wickes Group PLC | 1.17 | 349.35 | 9.32 | 4.62 | 5.19 | 25.38 | 3.02 | 1.95 | 4.67 |
| (LSE:KGF, Financial) | Kingfisher PLC | 2.35 | 5,307.20 | 5.29 | 0.35 | 5.90 | 15.52 | 4.22 | 0.71 | 3.63 |
| (LSE:HWDN, Financial) | Howden Joinery Group PLC | 5.55 | 3,547.14 | 3.52 | 0.70 | 9.87 | 8.83 | 8.06 | 3.55 | 6.29 |
| (LSE:HOME, Financial) | Home REIT PLC | 1.15 | 1,042.80 | 4.33 | 0.39 | 10.36 | 3.24 | 28.50 | 1.04 | 0 |
A closer examination of the balance sheet, however, shows the company has no long-term debt. The liabilities are mostly short-term current trade liabilities and long-term capital lease obligations. These should not be a problem for a profitable company like Wickes.
The company is profitable, as its income statement from last year shows.
Earnings have ratcheted up impressively post-IPO, undoubtedly helped by the worldwide boom in home renovations during the Covid-19 pandemic lockdowns.
The stock is very undervalued and has a large margin of safety. Even if we assume minimal growth of 2% and a discount rate of 8%, we get a wide margin of safety as shown by the discounted cash flow calculator.
Recent insider transactions are highly favorable with CEO David Wood purchasing a significant amount of stock as the price fell.
| Date | Value | Name | Entity | Role | Shares | Max Price |
| 23 Jun 22 | Buy UK£99,489 | David Wood | Individual | CEO | 58,523 | UK£1.70 |
| 04 Apr 22 | Buy UK£19,887 | David Wood | Individual | CEO | 10,467 | UK£1.90 |
| 24 Mar 22 | Buy UK£99,464 | David Wood | Individual | CEO | 55,412 | UK£1.80 |
| 02 Nov 21 | Buy UK£48,935 | Christopher Rogers | Individual | Chairman | 22,000 | UK£2.23 |
Conclusion
The stock market in the U.K. is currently undervalued. Based on the Buffett Indicator, GuruFocus is projecting a future return of 8.6% per annum over the long term (for perspective, the U.S. projected annualized market return is just 1.2%, while Canada's is 3.5%).
Given the blows received by the U.K. economy in recent years due to Brexit, Covid-19 and now the war in Ukraine, plus the unsettled political situation, the consumer is in a depressed mood. UK (and Europe) may already be in a recession and pessmism is rampant. However, none of these setbacks are permanent and the economy will normalize in time. Thus, the U.K. stock market appears to be a fertile ground for deep-value investors.
Wickes' stock appears to be the unfair victim of this pessimistic dynamic. It is undervalued with an excellent balance sheet and pays a dividend. It is a pound sterling going for 50 pence. Why leave it lying around?
