Wickes IPO: Everything you need to know about its demerger from Travis Perkins

Wickes has been separated from Travis Perkins and spun-out through its own listing. We explain everything you need to know about the demerger and what it means for both businesses.

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When was the Wickes IPO?

Wickes was spun-off and separated from Travis Perkins through a premium listing on the London Stock Exchange’s Main Market on April 28, 2021. From this point forward, both companies have traded as independent, standalone businesses. Neither company owns a stake in the other.

It was not a typical IPO. Travis Perkins distributed Wickes shares to its investors as a form of dividend. Shareholders received one Wickes share for each Travis Perkins share they owned at the time of the demerger. This meant someone who owned 100 shares in Travis Perkins on the record date got 100 shares in Wickes. Wickes did not raise any new capital as part of the listing. Investors could then decide to sell their shares in Wickes or hold onto them.

Wickes IPO price: how much are Wickes shares worth?

Wickes shares started trading at 250p on their first day of dealings, according to data from Reuters, giving it a market cap of around £630.3 million. That was toward the top end of the valuation range being touted last year. Notably, Wickes shares rose to around 272p in early trade on the first day, boosting its valuation to around £685 million.

What did the Wickes demerger mean for Travis Perkins shares?

Separating Wickes had a large impact on the value of Travis Perkins. The company could no longer count income or profit from Wickes as its own, nor its growth prospects. This meant Travis Perkins shares plunged on the day of the demerger.

Travis Perkins will conduct a share consolidation in order to counter any drop. This will reduce the number of shares in issue to increase the price of each one and return them to the price before the demerger was completed. It intends to consolidate its shares on April 29 based on how its shares trade on the day of the demerger. Travis Perkins shareholders will continue to own the same stake in the company after any consolidation as they do now.

How to trade Wickes shares

You can trade Travis Perkins and Wickes shares with City Index. Just follow these easy steps to get started:

  1. Open a City Index account, or log-in if you’re already a customer.
  2. Search for ‘Travis Perkins’ or ‘Wickes’ in our award-winning platform
  3. Choose your position and size, and your stop and limit levels
  4. Place the trade 

Why was Wickes spun-off from Travis Perkins?

Travis Perkins had been considering what to do with Travis Perkins since late 2018, when it said it was reviewing its options to allow both businesses to reach their full potential and maximise returns for shareholders. It confirmed its plans to separate Wickes in July 2019, but then hit the pause button when the pandemic erupted before deciding to push ahead with its plans once it saw Wickes was continuing to perform well despite the severe disruption.

Travis Perkins and Wickes operate in the same space but serve different segments of the market.  Travis Perkins is now focused on cementing its position as the UK’s leading distributor of building materials to the likes of large contractors and housebuilders, expanding Toolstation (particularly in Europe), which serves small tradespeople, and its plumbing and heating division.

Wickes has evolved into a very different beast and has been growing at a faster rate than Travis Perkins, especially since the pandemic started. There has been significant investment into Wickes digital capabilities over the years and this has paid-off during the pandemic. In fact, Wickes said it is ‘moving towards’ two-thirds of all sales involving a digital journey – whether that is customers researching products online to actually buying them through its website or app. 

Wickes has switched hands between several owners since being founded back in 1984. It originally operated in the US and did not move into the UK until the 1970s. By 1987, Wickes was firmly a UK business with 40 stores across the country and was floated on the stock exchange. It then started to expand internationally into the likes of South Africa and Europe before selling its overseas operations in 1997.

It was then purchased by Focus Do It All in 2000, by which time it had expanded to over 130 UK stores. Wickes continued to expand and had over 170 stores by the time Travis Perkins bought it for £950 million in 2004. Today, Wickes has 233 stores.

What is Wickes?

‘The Wickes Group’s mission is to be the home improver’s and the local tradesperson’s partner of choice, with a vision for “a Wickes project in every home” and its purpose to “help the nation feel houseproud”’ - Wickes.

Wickes is a well-known name in the UK that serves as a hub of supplies and assistance to those looking to do a bit of DIY, have work done on their property, and for small independent tradespeople looking for the materials and tools they need to run their businesses.

This translates into three divisions: Do-It-Yourself (DIY), Do-It-For-Me (DIFM), and local trade.

DIY is all about providing the basics needed for people tinkering with their houses, such as painting, putting up a shelf or gardening. The focus here is providing the right range of products at the right price, ensuring customers can get what they need easily in-store and online, whilst also providing assistance to those that need help with their projects.

DIFM is an end-to-end service that sees advisers oversee customer projects from start to finish, such as fitting a new kitchen or bathroom or having a new floor or tiles installed. This involves everything from design to installation. Reputation and quality are important here and Wickes boasts a net promoter score of 91%.

Local trade shifts away from the everyday consumer to local tradespeople, providing them with the materials they need like timber, plasterboard and cement to complete projects such as home extensions or loft conversions. Tradespeople are particularly concerned with having immediate access to what they need to ensure their projects keep on schedule and getting a competitive price. This part of the business is spearheaded by its app TradePro, which allows tradespeople to research and buy the full range of Wickes products.  

How does Wickes make money?

Wickes makes money by selling products and services through its 233 retail stores, its website and its TradePro mobile app. Most of its sales originate digitally one way or the other and it offers delivery and click-and-collect services.

Wickes revenue was broadly even between DIY, DIFM and local trade before the pandemic hit. However, demand for DIFM projects has been severely hit over the past year and services only accounted for 20% of income.

Is Wickes profitable?

Yes, Wickes is a profitable business and should remain that way as a standalone business. Revenue and profits have steadily grown over the years and this has not changed despite the disruption caused by the pandemic, even if it has weighed on certain parts of the business like DIFM.

Notably, Wickes significantly outperformed the market in terms of topline growth before the pandemic hit. Revenue grew at a compound annual growth rate of 4.9% between 2013 and 2019, almost double the 2.5% market growth over the same period. Revenue growth slowed somewhat in 2020 as the pandemic hit but still came in an impressive 4.2% higher year-on-year.

The below table outlines Wickes financial performance in the financial years ended on December 29, 2018, December 28, 2019, and December 26, 2020:

(£, millions)

2018

2019

2020

Revenue (of which -)

1199.6

1292.4

1346.9

- Product Sales

857.2

906.2

1072.4

- Do-It-For-Me Sales

342.4

386.2

274.5

Gross Profit

469.7

501.3

509.1

Operating Profit

56.6

56.2

61

Pretax Profit

22.1

22.7

28.9

Wickes believes the market is poised to continue growing over the coming years and that it can continue to outperform its rivals. An aging housing stock, increased demand for remodelling work and a significant proportion of single-residency homes should all help the market continue to grow at a CAGR of around 2.5% over the coming years, from £25 billion in 2019 to £28 billion by 2025.

The pandemic has caused disruption for Wickes, but it has also enforced its digital strengths. Like-for-like sales rose by almost 20% in the 13 weeks to March 27 and total sales jumped by over 25%. Demand for materials and tools has held up as people improve their homes during lockdown and while DIFM revenue has taken a big knock it expects ‘pent up demand’ to return as the year progresses.

However, overall growth this year will ‘moderate’ as the year goes on due to the strong comparatives it will come up against from the latter stages of 2020.

Does Wickes pay a dividend?

Wickes does pay a dividend under a progressive policy that aims to payout 30% of adjusted profit after tax in the financial year to January 1, 2022. One-third of the full-year dividend will be made as an interim payout with the rest being paid as a final. It also has a dividend reinvestment plan in place to allow shareholders to reinvest their dividends.

What does the demerger mean for the Travis Perkins dividend?

Notably, Travis Perkins is not currently paying dividends as it suspended them when the pandemic hit, although it plans to reintroduce payouts at some point in 2021, assuming no more surprises pop up.

Travis Perkins has not changed its dividend policy because of the demerger, but it will obviously lose profits from Wickes, which in turn will result in lower dividends over the near term.

What is Wickes’s strategy?

Wickes will continue to build all three of its divisions and underpin its strategy with its digitally-led proposition. It is aiming to have around 70% of all customer journeys to start online going forward.

This will be supported by doubling the capacity of its fulfilment capacity in stores, using dark areas in stores to hold more stock, and continuing to adjust its store network. It plans to open 10 new stores and shut down 10 over the medium-term and plans to make 5 to 7 relocations, while also renovating and refitting 35 to 40 outlets. Wickes also wants to continue moving toward smaller stores in better and more convenient locations rather than larger out-of-town sites.

The strategy for DIY is to identify and expand into areas where it currently underperforms while focusing on the most common and largest projects people typically undertake. This will be done by improving both the in-store and online experience, its delivery service and by offering simple pricing.

The DIFM division is expected to bounce back toward pre-pandemic growth of around 12.8% as demand for larger renovations recovers. It plans to introduce new kitchen and bathroom ranges, refit its showrooms and expand into new areas like building home offices for people. It aims for digital tools to play a bigger role. Around one-third of DIFM leads were being generated online before the pandemic compared to just 16% in 2019.

The local trade division is underpinned by the TradePro app. Wickes is planning to grow its registered tradespeople from 550,000 now to over 1 million and wants to double revenue over the medium term. This will be driven by a more personalised app and loyalty programmes.

Who competes with Wickes?

Wickes faces competition from a wide range of rivals but Kingfisher, which owns B&Q and Screwfix, as well as other brands like Homebase, Magnet and Wren Kitchens are among the biggest players. Many other general retailers, ranging from discounters like B&M and Wilko to grocery chains and Amazon, have encroached into the DIY space.

Wickes board of directors

Below is a list outlining the board of directors of Wickes:

  • Chair – Christopher Rogers
  • Chief Executive – David Wood
  • Chief Financial Officer – Julie Wirth
  • Senior Independent Non-Executive – Mark Clare
  • Non-Executive Directors – Sonita Alleyne and Michael Iddon

 


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