Freebie Quick Idea: Wickes To Benefit From Pledge For More Homes
Not quite second-order thinking, but still... The peculiar workings of the unconsciousness...
TL;DR
Free article, because
My contribution is relatively limited. I simply connect two articles I read to an investment of mine. Not as much effort or depth compared to my other articles
I refrain from valuing the company
Thesis: New UK Government pledges homes → More homes → Tailwind for Wickes
Introduction
Unlike my other posts in the Investment Opportunities category, this will be shorter, less in-depth, without an attempt at valuation - and hence a free article. I’d appreciate your feedback, of course.
Today, my mind connected two articles that I read one month and one week ago, respectively. Both relate to an investment of mine: Wickes Plc, $Wix.L. This post is to capture my thoughts and draw attention to the potential tailwind for Wickes based on the pledge of home building by the newly elected UK government. I do not know why it clicked today and not one week ago, or why it clicked while I was not thinking about Wickes…
The Mash-up
Wickes Plc
I refer you to a German article about Wickes from a month ago. I assume a translation tool will be good enough to get the idea.
Similar to
, originally I was drawn to the spin-off situation. My investment is down compared to the purchase price, but dividends and repurchases serve as compensation for waiting until a better market environment appreciates their ongoing investments, e.g. in the store remodeling.One thing to add to the article is that Wickes recently finished the IT system separation from the parent company. That was mostly classified as CAPEX spending and thus there is a part of Amortization/Depreciation that will continue. However, no that is complete and a bigger portion of the ongoing software costs can be directly run through the P&L and only a smaller part is considered CAPEX. The company guided that they will have the same cash-outflows for software/IT as before but reported profitability will be lower as a higher proportion is directly expensed. I think this is a positive from a cash tax perspective.
The Recent UK Election
Now in the second article from last week, the author looks for home builders in the UK as Labour pledged to build 1.5 million new homes in the next five years (and associated infrastructure I believe).
Now, of course, this is a political pledge, the Labour Party was just elected into government, and paper is patient as we say in Germany. Anyway: any progress or investment towards that pledge will of course benefit home builders, people interested in purchasing a home, materials suppliers, and workers. The “one-and-a-half order thinking” I alluded to in the subtitle of this article (it is not quite second-order thinking, I admit - but also not first order, I hope) is that Wickes should benefit as follows:
Its digital loyalty program TradePro for professional tradesmen is gaining new members each earnings call.
I believe that first-home buyers probably will need a basic range of tools to take care of their home. Maybe higher quality tools than e.g. when they were renting their apartment.
Often, home buyers want to do a portion of the renovation themselves (DIY).
There should be demand for its materials, sanitary installations, the recently renewed kitchen offerings, etc.
It offers energy efficiency consulting and products - new homes might directly be planned with products, materials, planning, and installation services that save energy, and maybe Wickes could get a piece of the pie.
Note also that in March 2024, Wickes acquired a majority stake in the Gas boiler installation company Gas Fast which also owns the solar panel installation company Solar Fast. While motivated by the aim of refurbishing the “least energy-efficient housing stock in Europe”, it seems to me that this acquisition stands to benefit from installation projects at new homes, too. Here is some commentary from the last earnings call:
And in our homes pillar, I've already mentioned that we've ramped up our range of energy-efficient products with the least energy-efficient housing stock in Europe. We want to help customers find ways to improve their energy efficiency of their home and reduce their bills. And indeed, as we seek to respond to this need, we have announced our plans to acquire the majority stake in Gas Fast Limited, which is the parent company of Solar Fast. Solar Fast is a solar panels installations business, who in the last 2 years have installed around 3,700 projects in U.K. homes. This acquisition will enable us to rapidly accelerate our Design and Installation growth lever and enter in a meaningful way to the emerging and exciting market for energy saving solutions. With the strength of the Wickes brand and our unique experience in designing and installing complex projects at scale, we see a great opportunity to be a trusted brand in what is currently a highly fragmented market and to build a market leader presence. The full details of the acquisition can be found in a separate RNS that we issued this morning. But in summary, we are acquiring a majority stake and plan to grow the business with the current management team.
…
Unknown Executive
And the final question, did you consider any other M&A for example, in the installation space where you can leverage your capabilities in terms of handling and delivering bulk products?
David Wood
I think the response will be, not at present. We're taking a very disciplined approach at the moment, Adam. And I think the first step forward through the lens of M&A when it comes to Solar Fast is the right step forward. I think it affords us a lot of long-term growth, and I think we're really well placed as an organization to become the nation's leader in the design and installation of this energy saving solution.
Source: Company’s earnings call on March 19, 2024; TIKR Terminal. (Auhtor highlighting
Note also that the supply of new homes also creates all sorts of stimuli through a "mobility effect". Say, a home buyer moves out of his/her flat and a new party moves into the old flat. The new party will want to renovate, decorate, potentially install energy-saving equipment, …
Of course, other DIY chains, hardware stores, and tools suppliers will benefit from home building stimulus as well… However, I think Wickes could benefit particularly well from its activities with TradePro, the energy efficiency solutions, and its acquisitions.
Summary
While I do not value Wickes in this article, I would argue that chances are that the new government’s plans benefit the company to some extent.
Disclaimer
At time of writing I do own shares of Wickes Plc. I may decide to buy or sell shares in the future. Not investing advice. Clearly, investing is risky. Consult a financial advisor, and/or do your own research.
Starting with the housing boost sounds promising for Wickes. You might want to check out mailsAI for keeping up with industry news and updates. It helped me stay on top of similar market shifts with less hassle.