Winners and losers in the Travis Perkins and Wickes demerger
By Rob Griffin
12:52, 24 June 2021
When builders merchant Travis Perkins announced plans to demerge DIY chain Wickes earlier this year, it was portrayed as a win-win scenario.
Both management teams would have the freedom to pursue their own independent long-term strategies for the benefit of both businesses.
Shareholders in the two companies have experienced vastly different fortunes, however, since the demerger was completed on 28 April 2021.
While Travis Perkins’s share price had risen 8.5% to £17.43 ($24.27) as the London markets closed on 23 June, shares in Wickes, after climbing for a brief period in May, ended up 6% down, at £2.48 over the same period.
Down to timing
So, what has happened?
Speaking exclusively to Capital.com, Danni Hewson, a financial analyst at AJ Bell, said that the answer is down to timing. “While the housing market is on fire right now, DIY has passed its sell-by-date, at least in terms of the COVID-19 crisis,” she says.
While lockdowns boosted home improvement projects as people had more free time at home – in “four small walls” as Hewson terms it – the relaxation of restrictions has given people more options for their spare time.
“Stores that became our salvation are now our anathema, an unwelcome reminder of what we’ve been through,” Hewson believes. “By contrast, housebuilders and professional services like plumbers are in the thick of it.”
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Boost for builders
Housebuilders – and other related industries – received a welcome boost earlier this year when the UK chancellor Rishi Sunak used March’s budget to announce an extension to the stamp duty holiday on house purchases.
In turn, this has helped bolster the UK property market. Annual house price growth hit 10.9% in May, according to the Nationwide House Price Index.
Prices rose 1.8% month-on-month in May alone, and that followed a 2.3% boost in April. It was enough to push the average property price up to a new record of £242,832 – up £23,930 over the past 12 months.
According to Hewson, builders and associated tradespeople will have their work cut out to keep up with demand – and Travis Perkins is likely to continue benefiting.
“There’s no getting away from the relentless hike in house prices, the overdemand and undersupply that looks likely to maintain upward momentum, or the shift in house buyer requirements,” she added.
Prospects for Travis Perkins
In a trading update this week, Travis Perkins predicted operating profit for 2021’s full year would be at least £300m, beating market expectations by around £40m.
Chief executive Nick Roberts said the trading performance during the second quarter was underpinned by demand in both domestic and commercial RMI (repair, maintenance and improvement) markets.
“Our merchanting businesses have recovered strongly while Toolstation’s performance continues to be ahead of expectations,” he added.
While noting inflationary pressures across some product ranges, which are being driven by high demand and supply constraints, he reassured the market that Travis Perkins was working with suppliers and customers.
Sam Cullen, an analyst at Peel Hunt, said in the company's Morning Notes report that the announcement illustrated that the positive trends seen in the first quarter had continued.
“As a result, we have increased our FY21E operating profit estimate by 35%, to £305m, driven by the better performance currently being seen in the merchanting business,” he said.
Outlook for Wickes
So, how about Wickes?
In the most recent trading update, issued on 1 June, the company revealed group sales continued to perform strongly.
Total like-for-like growth in the 21 weeks to 22nd May was 45.7% up year-on-year and had increased 23.1% on a two-year basis against the equivalent period in 2019.
Chief executive David Wood said he was delighted with how the entire business had responded to the continued strong demand for Wickes’ products and services.
“Availability constraints and inflationary pressures across some raw materials have been well-flagged, but we have strong supplier relationships and are working closely with them to ensure we continue to provide customers with the products they need at the best possible value,” he added.
Wayne Brown, an analyst at Liberum, is optimistic about Wickes’ future prospects and believes it stands to benefit from the high rate of mortgage approvals and households having excess savings.
“Consumers are adopting more flexible lifestyles with more working from home, [which] is driving greater and sustained interest in home-improvement projects,” he said.
Brown points out that Wickes has become a more balanced business in recent years with trade, DIY and kitchens/bathrooms each accounting for around a third of sales.
“We would expect the shares to re-rate from current levels as the group establishes its track record in the current market,” he added.
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