After a strong H1, this FTSE 250 gem forecasts annual earnings growth of 16% and looks 32% underpriced to fair value!
FTSE 250 home improvements firm Wickes (LSE: WIX) is one of those firms that rarely figures on investor radar. Some people get very excited about decking, doorknobs, decorative mouldings, no doubt, but the stock does not have the same glamour attached as, say, LVMH Moët Hennessy Louis Vuitton.
That said, I have often found that some of these frankly less sexy firms can offer great value propositions. This is because their relative anonymity means they are not among the first shares people buy when looking at stocks.
Consequently, there may be a considerable gap between their market price and their true value. The former is whatever investors will pay for any stock at any given time. This can be significantly influenced by the broader popularity of the company. The latter reflects fundamental factors in the underlying business.
To ascertain whether such a price-value gap currently exists in Wickes, I took a deep dive into the business. I also ran all the key numbers related to its stock valuation.
Strong results
Wickesâ H1 2025 results, released on 10 September, saw volume-led growth momentum across all areas of the business.
Retail sales revenue grew 6.8% year on year to £634.4m, with its âTradeProâ sales rising 10%. This is a loyalty scheme open to UK tradespeople. Design & Installation revenue rose 2.1% to £213.4m, marking the third consecutive quarter of sales growth.
Overall, the firmâs total revenue increased 5.6% to £847.9m over the half. This drove a 7.9% rise in adjusted gross profit to £312m and a 14.2% increase in adjusted operating profit to £40.1m.
A risk to the business remains any further surge in the cost of living, which may deter people from spending on home improvements.
However, consensus analystsâ forecasts are for Wickesâ profits to rise by an annual average of 16% to end-2027. And it is ultimately growth here that drives any firmâs share price and dividends higher over time.
Significant undervaluation
The discounted cash flow (DCF) model pinpoints where any firmâs share price should trade, based on cash flow forecasts for the underlying business. The DCF for Wickes shows its shares are 32% undervalued at their current £1.95 price. Therefore, their fair value is £2.87.
In my experience, a fundamentally solid asset tends to converge to its fair value over time.
The firm is also continuing with its £20m share buyback programme, which tend to be share-price supportive.
High dividend yield
Wickes delivers a dividend yield of 5.6% at present, compared to the FTSE 100âs 3.4% average and the FTSE 250âs 3.3%. Better still, analysts forecast that its dividend yield will rise to 5.6% this year, 5.9% next year, and 6.2% in 2027.
If dividend compounding were used then a £10,000 holding in the 5.6%-yielding stock would make £7,484 in dividends after 10 years. After 30 years this would rise to £43,446. By that time the total value of the holding would be £53,446. And this would pay an annual dividend income of £2,993 by that point.
I already have a well-balanced portfolio of growth and dividend shares, so I am not looking to add to it right now. However, I think Wickes is well worth the consideration of investors whose portfolios it suits.
The post After a strong H1, this FTSE 250 gem forecasts annual earnings growth of 16% and looks 32% underpriced to fair value! appeared first on The Motley Fool UK.
Should you invest £1,000 in Wickes Group plc right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Wickes Group plc made the list?
More reading
- Meet the stock that’s skyrocketed into the top 10 of this FTSE 100 fund
- Around 87p now, Vodafoneâs share price looks a bargain to me anywhere under £2.02
- Here’s why the BP share price could soon come under pressure (but I’m not selling up)
- Is the Associated British Foods (ABF) share price about to storm higher?
- With 10,000 Legal & General shares, this is how much second income an investor could earn
HSBC Holdings is an advertising partner of Motley Fool Money. Simon Watkins has positions in HSBC Holdings and Rolls-Royce Plc. The Motley Fool UK has recommended HSBC Holdings and Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
