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After leaving Travis Perkins in February 2022, wicks (LSE: WIX) share price fell from 264 pence to a low of around 115 pence in October 2022. Even after a recovery in share price to 151 pence, the price-earnings (P/ E) is just 8.9, which looks attractive compared to the company’s broader market and industry peers.
With Wickes’ sales growing 8.6% on average over the past five years, its earnings forecast to rise, and its 2023 expected dividend yield of 7.2%, its shares might be too good a bargain to buy. lose it. Therefore, you should take a closer look.
A top fixer
Wickes is a home improvement retailer that operates through 230 stores and online platforms. Its main customers are local merchants and DIY enthusiasts. But he also has a thriving do-it-for-me (DIFM) business where he arranges and pays for someone to install what his customers select in store and online.
I must start by looking at how the company is doing now. On January 31, 2023, Wickes published its business update for the last quarter of 2022. At five pages, it was fairly brief, but here are the key points:
- Comparable core sales increased 11.5% year-over-year (YoY) in the quarter and 3.5% for the year;
- DIFM’s comparable sales increased 34.5% year-over-year in the quarter and 26% in the full year;
- The DIFM order book was lower at the end of 2022 than in 2021 but higher than in 2019;
- Full-year 2022 adjusted pre-tax earnings are expected to be in line with market expectations;
- In 2023, energy costs are expected to be £10m higher and wage costs £3.5m higher than in 2022.
Wickes share price was trending lower on the day of the trading report, but is still in the range it has been in since early 2023. Overall, management is happy with recent trading performance, but seems to be warning about 2023. I just don’t see anything to get overly excited about here, nor much to feel pessimistic about.
Are Wickes stocks too good, miss?
Compared to specialty retailer average P/E of 10.0, Wickes looks cheap. Kingfisher it is a close rival trading at a P/E ratio of 11.2.
Now, I own Kingfisher in my Stocks and Shares ISA. I don’t want to have two of these types of actions, should I swap one for the other? Well, according to Statista, the UK DIY and hardware store market is forecast to be $34 billion by 2023, yes, that’s worthless dollars. Now, after a few conversions, Wickes has around 5% of the market according to analyst estimates. Kingfisher is about 10 times bigger in terms of revenue, so it should have about half the market.
And I don’t see much in the way of competitive advantages in this market. So the most efficient and secure operator, with the largest market share is the one I would choose. Kingfisher is larger and has higher operating margins and returns on capital employed. It is less leveraged and its liquidity position seems more secure. Although historically higher, Wickes’ sales growth is forecast to be comparable to Kingfisher’s over the next two years.
Wickes shares look cheap, but I’ll take what I have.
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