Interactive Investor

Insider: buying at two big retail names and THG

8th November 2021 09:00

Graeme Evans from interactive investor

Shares in this trio have fallen, some more than others, but insiders are clearly confident they can recover.

Retail bosses at Wickes (LSE:WIX) and Joules (LSE:JOUL) have given the impression they think their shares are in the discount category by spending a combined £70,000 on increasing their holdings.

Wickes chairman Christopher Rogers last week bought £50,000 worth of stock and Joules chief executive Nick Jones added £20,000 in his first purchase outside of a company fundraising.

The moves were made with both stocks lower than where they were six months ago as supply chain and inflation worries cause investors to treat the retail sector with caution.

The trading performances of the two companies continue to be robust, however. Wickes recently said like-for-like sales rose 16.3% on the same September quarter two years ago, and Joules reported a return to profit in August's full-year results.

Liberum analysts regard Wickes as one of the best ways to play the UK repair, maintenance and improvement sector, arguing that a forecast earnings multiple of below 10 times is far too cheap for “the high-quality growth, profit momentum and strong cash generation on offer”.

The broker has a price target of 420p, which compares with 228p seen on Friday and the opening point of 270p in late April when Wickes completed its demerger from Travis Perkins.

Rogers bought his shares on Tuesday and Wednesday of last week at prices between 216p and 223p, having also bought £100,000 worth of stock in May for 250p a share.

Wickes is the number two player in the £25 billion UK DIY and home improvement market, with 230 stores and a growing digital operation. While last year's pandemic-led DIY boom is now levelling out, home renovation work continues to lift order books for trade customers and the do-if-for-me service on kitchens and bathrooms is seeing strong demand.

Deutsche Bank has a target price of 313p, which factors in a progressive dividend with a 30% pay-out ratio. The bank said: “The consumer is in overall good health due to high employment levels and high savings ratio, but consumer confidence has been fading on inflation fears.”

Is buying Joules a smart move?

The most recent update from Joules came with August's final results, when it reported a return to the black with profits of £6.1 million after growing its number of active customers to 1.7 million from 1.4 million the year before.

Jones, who became chief executive in 2019, told investors that Joules started the new financial year in a strong position, having grown its home, garden and outdoor ranges through the acquisition of Garden Trading and also expanding its Friends of Joules digital marketplace.

The AIM-traded shares were 265p after the results but closed last week at 215p. Liberum is backing the shares to reach 400p, which is above the peak of 385p seen in June 2018.

The broker said Joules had strong brand awareness and a balance sheet able to support ongoing investment for future growth. It made no changes to its earnings forecasts in August, having already upgraded 2022 and 2023 profit estimates by 61% and 86% so far this year. 

Liberum said: “Joules continues to evolve from its clothing roots into a true destination lifestyle platform, broadening its offer, growing its customer base and bringing more diversified revenue

Jones bought his shares at 202p on Wednesday. He also took part in the company's £15 million fundraising in April 2020, when new shares were placed at 80p.

Betting on better times at THG

The slide for THG (LSE:THG) shares below £2 has prompted one of its non-executive directors to buy shares in the beleaguered e-commerce firm for the second time in less than a month.

Zillah Byng-Thorne and her husband bought more than £110,000 worth of shares as the freefall for the business run and majority owned by Matt Moulding continued during last week.

They bought their shares on Thursday at prices of between 196p and 200p, which compares with Byng-Thorne's previous £50,000 purchase on 6 October at 408p.

The chief executive of FTSE 250-listed publishing house Future has been on the THG board since 2018. The disclosure of her purchases on Friday helped THG shares finish the final session of the week 4% or 7.6p higher at 203.8p.

The stock had been at 800p in January, making it more valuable than Burberry Group (LSE:BRBY) and Sainsbury's (LSE:SBRY)s, and looked on course to go over 1,000p according to some City analysts at the time.

But sentiment towards the Hut Group business has been weakened by corporate governance concerns and City scepticism over the worth of its flagship Ingenuity e-commerce platform.

Ingenuity powers the online operations of THG's brands and is also reducing digital complexity for partners including Nestle, PZ Cussons (LSE:PZC) and Group L’Occitaine. But recent efforts to highlight its value have so far failed to win over the City, with Moulding reportedly telling GQ in an interview that he wished he had floated THG in New York and not London.

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