The FTSE 250 group resumed the demerger earlier this month after a year-long break due to COVID-19, with more details on the pricing coming soon.
The float is coming at a lively time for the market, which has seen a flurry of IPO news recently, mostly in the tech space.
In this sense, a brick-and-mortar retailer would certainly stand out among the new additions to the London Stock Exchange.
A bit of history
Founded in the US in 1854, Wickes is focused on three segments: DIY, trade and ‘do-it-for-me’.
While DIY and trade have recorded a stellar performance during 2020, the latter has been a drag because of restrictions on showroom openings.
Albeit trading has been lifted by people eager to renovate their homes during lockdowns, the now UK-based company is emerging from a troubled past.
The retailer already had a stint on the London market, which it joined in 1987, but was then acquired by rival Focus Do It All Group in 2000 following an accounting scandal and an attempted turnaround.
It was later sold to current owner Travis Perkins in 2004 and enjoyed over a decade of relatively plain sailing, interrupted by weak DIY demand around 2016 which brought to job cuts in 2018.
Travis Perkins announced a spinoff in 2019 in the hope to find a buyer, although the plan met scepticism in the City because of uncertainty around Brexit and negative sentiment towards the retail sector.
How tables have turned
Things look very different now, though Wickes is boosting digital operations like everyone else – last year, click-and-collect orders were up 450% for the year, while home-delivered sales rocketed 120%.
Total revenue was £1.3bn, with 5% like-for-like growth, and adjusted operating profit came in at £82mln, with underlying earnings (EBITA) up 34% in the second half.
The market is expected to rate it highly thanks to the online proposition, according to Liberum, which is “significantly” better than those of B&Q or Homebase.
“It is a genuinely omnichannel business,” the broker said, adding that all 233 of its stores now act as local fulfilment centres for online orders.
“While it may be tempting to think that DIY may fade as lockdown ends, Wickes has built a significant new online customer base that it is likely to keep, and whose appetite for DIY may prove enduring,” analysts commented.
“The trade-like element is likely to mirror housing transactions (like residential RMI more generally) and these are a long way from peaking, as mortgage approvals are still rising (year-on-year). Showroom’s prospects are best of all as good lead activity is building an excellent order book, which should come through once homeowners feel more comfortable with tradespeople in their properties.”
The demerger would create value for Travis Perkins because of the premium rating, a stronger balance sheet while Toolstation would become a more meaningful part of the group, the broker concluded.
Will it meet its promise?
Other City analysts were slightly more pessimistic, noting that Wickes has suffered the same fate as supermarkets in having to incur extra safety spend, while delivery costs may have squeezed profit margins.
“Wickes is eager to talk up its situation, saying it expects to deliver sales growth ahead of its markets this year, but its overall success has a lot riding on the consumer spending big once lockdown restrictions are lifted,” commented AJ Bell investment director Russ Mould.
“It is banking on pent-up demand to translate into sales of new kitchens and bathrooms. That’s not a given, and so Wickes could start life as a standalone listed business in a position where management risk disappointing investors if the hoped-for sales burst falls flat.”
Shares in Travis Perkins rose 1% to 1,598p on Wednesday afternoon.