Jefferies backs Wickes with “buy” rating and 36% upside target on growth prospect

Investing.com -- Jefferies has initiated coverage of Wickes Group Plc (LON:WIX) with a “buy” rating, setting a price target of 275p, about 36% above the company’s prior close of 202p. 

The brokerage said Wickes’ “value-led model, majority own-brand portfolio, and superior service provide a competitive edge in a fragmented UK home improvement market.” 

The analysts forecast profit before tax will grow at a compound annual rate of about 20% between fiscal 2025 and fiscal 2028, supported by around 6% annual revenue growth, modest margin improvement, and operating leverage. 

Jefferies said this gearing effect will drive a rise from revenue to EBITDA growth of 8%, EBIT growth of 13%, and profit before tax growth of 20%. 

“It is important to emphasise that this is not driven by one-off or non-operational elements; rather it is the mechanical effect of operational gearing gains,” the brokerage noted.

For fiscal 2025, Jefferies projects revenue of £1.62 billion, adjusted EBITDA of £182.6 million, and adjusted EBIT of £73.9 million. 

Adjusted profit before tax is forecast at £48.9 million, a 12% year-over-year increase, while free cash flow is estimated at £31 million, yielding 6%. Shareholder returns are expected at £45 million through dividends and buybacks.

The initiation flagged Wickes’ TradePro business as a key driver of medium-term growth. TradePro revenues reached £481 million in fiscal 2024, representing about 2% of the £30 billion UK trade market. 

Membership has risen from 580,000 to 615,000, with tradespeople spending about £1,000 annually on average compared with £10,000 for general builders. 

“Wickes sees significant opportunity for expansion,” the analysts said, citing enhancements to the TradePro Rewards program and improvements in fulfilment.

Design & Installation (D&I), which accounts for roughly 30% of group sales, is also expected to recover after an 11% revenue decline in fiscal 2024.

Jefferies forecast D&I to deliver around 5% revenue growth per year, supported by a strong order book, expansion of the installer network, and digital tools for project management. Ordered sales returned to growth in the fourth quarter of fiscal 2024 and continued into 2025.

Jefferies said Wickes’ competitive positioning rests on low everyday pricing, a curated range with about 60% own-brand products, and rapid fulfilment options, including 15-minute click-and-collect and next-day delivery.

An analysis of 30 comparable products found Wickes was about 2% cheaper than B&Q and 9% cheaper than Travis Perkins. After factoring in trade discounts and delivery costs, Wickes’ advantage widened to 7% against B&Q.

The company operates 229 stores, the UK’s second-largest DIY estate behind B&Q, and plans to grow to 250 locations over the medium term. Jefferies expects new stores and refits to contribute about 2% annually to revenue.

Key risks include pressure on household spending, volatility in the housing market, competition in the DIY and trade sectors, and execution risks on store expansion. 

Jefferies is optimistic about Wickes’ prospects. The brokerage believes Wickes is in a strong position to restore profit margins and achieve above-peer growth.