I mostly buy FTSE 100 blue-chips but I’m ready to make this undervalued growth share an honourable exception. Personally, I think it’s too good an opportunity to miss.
Home improvement retailer and garden centre Wickes Group (LSE: WIX) isn’t the whizziest stock on the FTSE All-Share. I’m hoping that will change.
The building material supplier may be a household name, but it’s only been trading on the stock market since 28 April 2021, when it was spun off from Travis Perkins. So far, there’s been little for investors to shout about.
Hidden FTSE gem
The shares opened at 263.9p in 2021. Today, they trade at 156p, which is a drop of 40.89% in just over three years. They’re up 13.1% over 12 months, though, as investors sniff an opportunity.
Wickes largely missed the pandemic DIY boom, floating just as it was drawing to a close. It then swam straight into the cost-of-living crisis, which drove up materials and labour costs, while hitting demand from cash-strapped doer-uppers.
Now I’m hoping the DIY and building sector will pick up as wages are rising faster than inflation, making people feel better off in real terms, and interest rates fall, boosting house sales. Labour’s planned building boom may help here.
It won’t happen overnight, though. People have to start buying homes before they do them up, and that will take time to feed through to sales.
Yet, I think this could be a good time to get on board, especially with the Wickes share price trading at a modest 10.29 times trailing earnings.
Better still, it offers a bumper forecast yield of 7.01%. I’m not anticipating much dividend progression in the short term, though. The board held the full-year dividend at 10.9p share in 2023, and expects to hold again in 2024. Still, I won’t be complaining if that comes through. The forecast yield for 2025 is 7.04%.
Wickes looks good value
Revenues and pre-tax profits have been bouncing around in recent years, as my table shows. Again, I’m blaming that on the downtown.
| 2020 | 2021 | 2022 | 2023 | |
| Revenues | £1.347bn | £1.535bn | £1.562bn | £1.554bn |
| Profits | £28.9m | £65.4m | £40.3m | £41.1m |
The good news is that Wickes has been gaining market share. Also, it’s spent a lot of money refurbishing its 230-odd stores, and most of that investment is now behind it. Now it can enjoy the subsequent sales boost. Adjusted pre-tax profits are forecast to climb slightly to £43.6m in 2024. Not great, but I think the real action will be further down the line.
I do have concerns. Operating margins are low at 4%. All those stores cost money to run. The 7.7% return on capital employed doesn’t excite either. Yet with a market cap of £378m and enterprise value of £937m, Wickes appears to have plenty of room to grow if sentiment picks up.
Its kitchens and bathroom design wing should also revive once households feel ready to greenlight bigger DIY projects. Clearly, the stock isn’t without risk and I’d only buy with a long-term view. But I will buy it.
