Yet Another Value Podcast - Conor Maguire sees value in Wickes

Episode Date: April 8, 2022

Conor Maguire, founder of Value Sits, discusses his thesis on Wickes (WIX:LSE). Wickes is a cheap retailer that Conor thinks is both recession resistant and suffering from typical post-spin dynamics.My notes on WIX: https://twitter.com/AndrewRangeley/status/1511702344022609922?s=20&t=2lChWyeIhR6HZWw938bR8QConor's write up: https://valuesits.substack.com/p/wickes-group-plc-wixln?s=wChapters0:00 Intro1:55 Wickes Overview5:25 WIX value proposition and customer base10:25 Amazon risk12:00 WIX valuation15:15 WIX and the death of retail narrative18:10 Opportunity cost of WIX versus other retailers20:45 Spin-off dynamics21:55 Are the spin-off dynamics real?24:55 Does being independent accelerate WIX growth?28:05 The economics of store refits31:25 Management incentives34:05 WIX downside protection35:05 Do you read anything into WIX installer poor reviews?39:35 WIX Trade Pro side42:15 WIX digital sales44:15 Upcoming de-merger costs48:10 Other situations on Conor's radar49:10 Discussing DOLE51:20 Kenmare Resources

Hello and welcome to the yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have Connor McGuire. Connor is the founder of, I guess it's just value sits, substack. Connor, how's it going? I'm good, Andrew. Yeah, good to be on the podcast. How are you? Doing good. Hey, I was just laughing to myself. I think you might have the best accent of anyone who's come on the podcast so far. I'm just loving that accent. But let me start this podcast the way to do every podcast. First, a disclaimer, which remind everyone, nothing on this. podcast investing advice. Always true, but I'll just give a little extra note that we're going to talk about an international stock. It is on the smaller cap side. So everybody, please, you know, this is probably a little higher risk than normal. Please do your own work. Consult a financial advisor, not financial advice. And then a second with the pitch for you, my guest, you and I were catching up beforehand. I remember when you, when you started your substack about a year ago,

and you quoted me right back. I said, look, your first post was on the, it was total produce, was merging with Dole, if I remember a correct place. That's it. Yeah, that's right. You know, I'll generally like link to people's first post if they want, but I try to wait and feel it out, but I was like, as soon as I already said, this substack is going to be fantastic. And it's absolutely proven it. People are going to see today just all

sorts of quirky situations all across the globe. So, you know, you've actually got a big file and I had like five people reach out when I said I was having you on. They were like, I love a substack. So just so excited to have you on and so excited you've kind of got some traction going a year into substacking. No, that's

Right. Yeah. Listen, you were one of the very early people to kind of give me a bit of a promotion online and in your own news letter. So, yeah, I'm glad I'm still here and still sharing ideas. So it's great to be on the podcast. So looking forward to the discussion. Hey, thanks so much. Well, let's just dive right in. The company we're going to talk about. It's Wix. The ticker is WIX. But if you look up WIX domestically in the U.S., you'll find Wix, the website company. This is Wix. It trades in London. It is a London home goods store. But I've probably talked to you. much already, so I'll turn it over to you. What is Wix and why are we so interested in it? Yeah, no, thanks, Andrew. So Wix is the second largest home improvement in DIY retailer in the UK. So it was spun out of a larger building materials business, listed building materials business called Travis Perkins PLC about last April. And the rationale for the spinoff at the time really was Travis Perkins or more focused on, you know, the trade or the business to business material space. And so the decision was made just kind of simplify their business and spin-off

what is really essentially a kind of a retail-focused business with Wix. So I suppose some comparables in the US may be something like Home Depot or Lowe's, but this is a much smaller business and obviously relative relative to the UK market as well, which is itself a much smaller market. So the spin-off is structured as a one-for-one share distribution to Travis Perkins shareholders. And as is often the case with a lot of spin situations like this, a lot of the big holders of Travis Perkins shares immediately sold off their stock or started selling the shares they received into the market over the last nine, ten months. And really, the rationale for that really is that it's just mandate reasons. I mean, Wix is a kind of a 460 million pound sterling

market cap business. Travis Perkins is, you know, about 2.8 billion sterling market cap. So much larger business. And I suppose one of the main reasons why the sell-off was two reasons really, I suppose, not wanting to own similar risk twice in terms of investors. If they already own Travis Perkins, that was the much larger business. There was no reason to hold on to a smaller spinoff once they'd been distributed with the shares. And secondly, retail as well, there's probably a perception around retail, which I think in the case of Wix is misplaced when we can get into that. But similar again to the US retail apocalypse, as the narrative is over there,

the debt of the high street, as they call it in the UK, and death of UK retail. So it's probably suffered a little bit from that type of perceptions though. Great, great. That's all great. And I want to dive into all of that. Let me ask you a quick simple question. You mentioned it reminds U.S. listeners, Home Depot, Lowe's. My first simple question, is there any relation to Lowe's? Because when I was reading the deck, I was looking through the slide, like the color palette, all of it, it just, it rhymes with Lowe so much. Either there had to be a relationship, or one of them stole each other's logos and color fonts and everything? I don't know if there was anything stolen. I would say it's purely coincidental, but no,

there's no, there's no relationship. This is a totally 100% UK-focused business. As I said, it's a small cap. It's about 1.5 billion in revenues, 460 million or so market cap. So, no, they've no business outside of the UK, and it's an independent DIY retailer now listed on the London Stock Exchange. Great. And then just, You know, look, one of the things I find difficult about investing internationally is if you're talking U.S. and, you know, you talk to me about a retailer company, I can generally, like, picture where in my, where they fall into it, you know, is it a super high end retailer or is it lower end? You know, IKEA's probably a step below, certainly a step below restoration hardware

or something, right? With Wix, it was just tough for me. Like, in my mind initially, I thought, oh, this is the lows of the UK. But it's not quite that big. It doesn't have the same selection. So where should people kind of think about the value proposition who's shopping there? Why are they shopping there? Yeah. So Wix's business model is, our operating model is probably different to its main competitors in the market. So it kind of straddles three segments of the home improvements or DIY market.

So first, you've got the local trade businesses, just where they supply materials to local tradesmen who are doing DIY projects for consumers. So these aren't large firms. These are usually one or two-man band type, you know, tradesmen who will get the materials they need efficiently from Wix and then do whatever jobs for consumers separately to that. Secondly, there's what's called the DIFM or Do It for Me segment, which is really kind of the end-to-end service offering where the retail customer will go into Wix store or onto their website that speak to a consultant. And that's really kind of an end-to-end kind of, you know, from concept to final installation of something like a kitchen, room, flooring, tiling, that kind of thing. And then thirdly, then thirdly is the traditional DIY segment,

which is, you know, you go in, you buy whatever, you know, paints, paints, brushes, timber, whatever you need for your own personal DIY project. So it's kind of very evenly balanced across those three segments, which is a little different to the competitors in the market. Then the second difference in terms of the mix, really then, is the operating model itself. So this is kind of a value for money, value retail type offering where they don't operate a big box model where they try and stock every conceivable DIY item to meet all consumer needs. So they have a very focused, what they

call a curated product range, where they stock in store about 9,000 SKUs, which compares to about 40,000 for their larger competitor, the market leader, which is B&Q, which is owned by King Fisher, which is another listed PLC business in the UK. So they're a much smaller product range, kind of lower price point, more value-oriented, and then a smaller store footprint as well. So their average store size is about 20,000 square feet, 22,000 square feet,

which compares to about 80,000 square feet, more like the big box type retail model that B&Q operates. So that's kind of where it sits. It's kind of more price conscious and kind of maybe more narrow product range, but what they do is they try and stock all the high demand, you know, fairly reliable in-demand products for home improvement. Perfect, perfect.

And, you know, I was trying to find this slide as you were talking, but I couldn't quite find the slide. One of the things they argue in their decks is they're like, look, a lot of our competitors, as you were alluding to, kind of focus on one segment, right? They focus on the consumer or they focus on serving the pro. And Wix argues, hey, we focus on everyone, and that is an advantage, which I can't understand that. But at the same time, like, as you said, the stores are about a quarter of the size of peers.

Like, it does seem strange to go and say, hey, we focus on everyone with a store size, a quarter of our peers. And because of that, it's an advantage. Does that make sense? Well, I think it does because they're trying to target that end of the market that isn't properly serviced by or isn't sufficiently serviced by, the larger peers. And you have to remember as well, the UK DIY market has gone through quite a bit of change. I mean, there's been a number of kind of bankruptcies or, you know, retailers that collapsed. And really, there's only three kind of players, pure play, kind of DIY, home improvement retailers still standing. And B&Q, which is the largest, then Wix,

which is the set number two, and then home base, which went through its own restructuring and kind of a distress scenario, which is the third largest. So outside of that, You're dealing with general retailers, you know, value discount retailers, Amazon, you know, kind of homeware businesses that might stock some kind of gardening or other kind of furniture type DIY related products. But I think, you know, I think the balance they have makes sense. And I think that shows through kind of the track record. I mean, they've consistently grown revenues and earnings over the last 15 years. And that's through, you know, the great financial crisis in 2008-09. through Brexit, through kind of the market in 2018

when Homebase went on this aggressive strategy when it was bought by an Australian conglomerate which failed. Wix actually took a bunch of that and grew market share. And then most recently, obviously, COVID. You know, so they've been through, and then the pandemic. So they've been through kind of a fair bit of turbulence. And really, it's, you know, there's only a handful of players left. And Wix has its own very different.

state of model, which I think, you know, for as it makes it interesting, and then secondly, obviously, the valuation and another number of other attributes as well, which would make it really, I think a really compelling situation. We're going to talk valuation and the special set set up in one second, but I just want to wrap up on the competitive landscape. You mentioned Amazon and there, and, you know, domestically, Amazon is obviously the big scary boogeyman to a lot of retailers, but at the same time, you know, when you think Home Depot, you think lows, those have done a great job of being insulated, and a lot of it has to do with, you know, they sell lots of heavy stuff, lots of things that Amazon can't easily pack in a warehouse and ship

to your house. So I just, you know, the Amazon buggy man, A in the UK, like how much power does Amazon kind of have? And in the Do It Yourself segment, like a lot of what's Wix is selling is the Home Depot type stuff that, you know, isn't easy to ship. But they also sell a lot of stuff that, you know, you probably couldn't online ship through Amazon. So how scary is the Amazon threat there? Yeah, I mean, it is certainly, I mean, it is one of their competitors, but I think maybe pick one of the key criteria, which is on price. And I just, I did a quick spot check of kind of, to come different product types on price. And wicks were actually slightly cheaper than Amazon's UK platform on a number of things like paints, paint brushes,

that kind of, you know, kind of standard DIY items that consumers would look for. So, you know, it completes pretty well against Amazon in that respect. And then with DIY as well, a big, a big element of DIY is getting a bit of in-store advice or someone's advice on what you're trying to do, maybe wish products to pick or that kind of place. Obviously, you don't get any of that with Amazon. Perfect. Perfect. Let's talk valuation. And then I want to go into the spin-off and it's kind of the remaining special situation here. So as you and I are talking Wix last traded for about 181. Is that Pence? I always forget. I think it's 181 pence. So let's talk valuation real quick here. Yeah. So I mean, I look at this on a kind of

what's called sometimes a post-IFRS 16 basis. So just maybe just to kind of touch on that for a minute. So that includes lease obligations or lease as kind of notion of debt on the balance sheet after the IFRS 16 standard came in, which is not something that I think is reported in the U.S. or in U.S. Gap, but it actually is reported in the U.S. very similar to IFRS. Two or three years ago, they made retailers broke all of their operating leases onto the balance sheet. And it's a, yeah, I'll let you continue, but it's certainly a big issue when looking at these guys.

You know, you'll pull up a retailer on Bloomberg and I'll say the thing's 50 times lever and you'd be like, oh, my God. And then you say, oh, no, it's all their net cash. It's all operating leases, which, you know, are a financial liability. but I'm sorry, please continue. Yeah, so, I mean, personally, I think, you know, rent is just a business expense, like, you know, utilities and so on. But I think it's important to look at it from both ways because, you know, for example, Wix and a lot of its peers, they report, you know, they operate fully leasehold models. So they lease all their stores.

So you have to look at the total leverage picture. So I think it is relevant. So on a kind of, including the leases in debt, you know, it trades at about five times. Today, it trades at about five times EBITDA. And we look at kind of private markets. transactions in the space that historically been around six, seven times. And is that six, seven times you just mentioned? Is that on the like-for-like operating lease basis?

That's a mix. That's a mix from what I've been doing because a lot of these deals, they don't disclose the kind of the in-depth financialists. They involve private companies or subsidiary. So it's not, I believe from the digging that I've done, I believe it's a mix. And let me ask you a nerdy question just to dive into that. And we can talk at least some more in a second. They give an adjusted EBITDA number, right?

For the LTM 2021, their adjusted EBITDA number was 219 million pounds. Is that an adjusted EBITDA number they give? Does that add back rent or is that with rent for rent? Correct. Yeah, that adds back rent. So the $219 million is before rent. So it is a like for like number because, you know, again, one of the issues is if you just take a normal adjusted EBITDA.

So this would be more an EBITDA number. Right. EBDA with rent added back, which is perfect. If you're looking at something on an operating lease basis, that is how you should be looking at it. So great. Okay, perfect. Yeah, so it's about five times on that basis. And then if you look at it on a kind of a, you know, in the traditional sense, you know, where you net out the rent, you don't include the leases in the, in the EV calculation. It's about three and a half times. Yep. So, you know, either way, it's very cheap. And compared to, so compared to private market comes, as I said, that's six to seven times. If you look back at peers, the peer group over to say the last 10 years, which you're, kind of, you know, to give a kind of a through-the-cycle type of perspective, that's been 10-11 times, so much higher. Now, retail landscape has obviously changed since then, so in more

recent years, that multiple has trended downwards. But in terms of, kind of, you know, against the comp set, the historic concept, it's, it's well below the stark garbage. Now, you've said a couple times the retail landscape has obviously changed. And look, I don't disagree with that, right? Like, no, Macy's, calls, all these guys are really struggling. But at the same time, someone like Wix, you know, my mental model is, I quickly think, do it yourself, that there's some Amazon risk there, but not a ton. You know, the trends are probably in their favor. We can talk about the aging UK housing stock, which is probably similar to the aging U.S. housing stock and all this. And, you know, I just go to my mental model, Home Depot, over the past five years,

the shares are about a double, right? And they pay out a nice little dividend lows. I think the shares have done really well, all this sort of stuff. So I guess my question is like, you've said death of retail, challenge retail industry. But for Wix, is it? No, I mean, that's my, I mean, part of my thesis is that, no, I mean, that death of the retail narrative doesn't apply to Wix. I mean, there's a couple of basic reasons for that. I mean, again, DIY, and if you look at the data historically, DIY has proven to be a very resilient industry through recessionary times, just to give you a few data points. So great financial crisis 08, 09, UK property prices declined nearly 20%. And over that two-year period,

period from 07 to 09, Wix grew their revenues compounded about 5% per annum. So they grew through a recessionary period. And obviously, DOI and hold improvement is highly correlated to GDP and to house prices. Similarly, GDP at that time declined by 4.5%. So again, Wix growing revenues at 5% compoundage. It goes against that trend showing its resilience. Then post-Brexit, Brexit vote in 2016, there was a big knock to consider. consumer confidence, but again, Wix kept growing through that period, gaining market share,

growing earnings. Then obviously, most recently, COVID, UK GDP declined, I think, 9.4% and obviously because of the DIY boom that I think all DIY or home improvement retailers kind of experienced, Wix has obviously grown very strongly through that. So it's proven to be a very resilient business. It's actually in the last 15 years since it was originally acquired, I think, by Travis Perkins. It never has had a down year in terms of revenues year on year. The worst was flat, I think, in 2018. And that was because of Homebase, which was at the time, a larger peer was, as I mentioned earlier, was acquired by an Australian conglomer called West Farmers. West Farmers bought Homebase, came into the UK market, thinking they were going to disrupt it,

completely botched the acquisition, ended up selling Homebase for a pound to a P.E. Restructuring P-E fund and, you know, so it's completely disastrous acquisition. Wix managed through that kind of pretty short but intense kind of period of competition grew their market share, grew revenues and are now the number two player, about twice as large as home base is today. Perfect, perfect. Let me ask you on opportunity costs, right? Because I think one of the things we've, we've probably hopefully established at this point is Wix is pretty cheap, right? IFRS, adjusted basis. I think it's about five times EBITDA is what they're trading at. If you like price to earnings, you know, price earnings probably six and a half, definitely under seven times

earnings. So this is a pretty cheap company. But, you know, one of the things I've hammered it home on the blog, I don't know if you've seen it up, but there are a lot of cheap retailers out there, right? So just a couple off the, I'm just looking at my screens. You know, like there's this little company that actually was featured on the pod, Cato, which owns some real estate. That's trading for under three times EBDA, you know, all of the sporting good retailers, which I've mentioned a ton in a bunch of places, Academy, Dix, sportsman warehouse, all of them trade for, you know, around three times trailing EBDA. So I just have a question, opportunity costs. Like, why is Wix the kind of cheap retailers to play? Now, just to be clear,

the EBITDA numbers I mentioned before are on the, it hasn't done leases. They probably trade for a similar multiple as Wix if you do all the lease adjustments, everything. But, you know, why is WICS? the best of the cheap retailers to buy? Well, I think, first, see, given where we are at the moment in terms of macro headwinds, recession fear is cost-of-living crisis and so on. DIY, within the retail space, DOI has proven to be very resilient, as I mentioned earlier. Number two, on a multiple valuation, five times EBITDA, or I call it, you know, pre-IFRS-16, three and a half times EBITDA, that's, you know, that's almost like a distress.

valuation at that kind of a low multiple. It's below where private market comps have completed at. So, you know, today it's kind of priced for the downside, but, and you look at the price chart and the share price has just come down about 30% or 35% I think pretty steadily because of all this force selling. So, yeah, and that's in tandem with successively positive trading updates while the share price was trending downwards because of all this mandated selling. So, you know, the combination of those factors, non-fundamental selling, resilient business model, positive trading updates, and, you know, what I would argue, given where the UK housing market is at and the home improvement market is out, I think the prospects for it are pretty reasonable, certainly much healthier than higher end or more discretionary, you know, retail.

So, you know, that combination of factors, I think, makes Wix very attractive. Perfect. So I think one of the thesis here is this is a classic spin-off situation, right? This was spun about a year ago. It's the smaller piece of the spin. As you said, over the past year, the shares are down about 30%. And a lot of that is probably for selling for people getting this smaller retailer and saying, I don't really need it. It's too small and not in my mandate, all that. Is that about right? that's right yes so i mean when when when it was spun off between when it's been spun off and now about 21% of the share capital has been has been sold down by by the original uh recipients of the shares in the in the share distribution so that's you know that that that's been a big weight on the share prices in terms of driving that for selling and when you look at the kind of the volume trends and the price action more recently that certainly seems to be stabilizing now in terms of

the volumes have stabilized, there isn't that same level of selling pressure. And the shareholder register, you know, it's value managers now that holds maybe the top three or four positions in terms of maybe the 20% of the share capital. I don't necessarily disagree, but I just want to push back on that thought a little bit. Because, you know, that's the thing that, it's the type of thing that got me really excited, but I also worry like, oh, am I just falling prey to a nice story? And I want to get into an event-y situation. So I guess my two pushbacks would be, number one, I think the typical spin dynamics are a, like somebody spins off something completely different, like, you know, AT&T spinning

off discovery. That's going to happen in the next two weeks or so. That kind of is typical because the typical AT&T shareholder is there for the dividend and they're there for like, you know, the old sleepy telecom company. And now they're getting this growthy, kind of levered media company that wasn't even a part of AT&T five years ago, and they probably look at that and say, doesn't pay a dividend, completely different business. And they just sell and ask questions later, you know. So that would be part A of the pushback. And then part B, you know, most of the selling has

happened over the past, let's say, six months. And, you know, the typical spin situation is most of the selling happens in the first 30 to 45 days of the spin, right? And I would say over the past six months, one of the things that happened is like, you know, the macro outlook's gotten worse. And stocks like Home Depot has gone from over 400 to 300 to three. right now. So I know you're saying spin dynamics and I don't necessarily disagree, but at the same time I look at it and say, maybe we're saying spin dynamics where it's just actually like the outlook's gotten worse and like it wasn't as badly sold as the typical spin. Does that make sense? No, it makes sense. But what I would say in terms of the actual kind of selling pressure

in the first six months post the spin, that's when the heaviest selling and most of the dumping of shares took place. And since then, it has kind of eased off. And in most recently, in the last quarter, is when it really has stabilized. So I think, you know, I think in terms of that kind of selling dynamic, it's certainly, it's taken that amount of time to kind of watch through. Yeah, okay, the macro does look worse. But again, I go back to, you know, when you look at the UK housing market, 80% of the UK housing stock is 30 years plus older.

So, you know, there is a kind of a structural ongoing kind of, if not, you know, total renovation, at least repair and maintenance requirement across the UK housing stock, that's not really, that, you know, there's no getting around that. And then in addition to that, where Wix sits in terms of the retail segment, the kind of value from money, curated product range offering, I think, you know, any kind of, you know, required or necessary DIY expenditure, they should see, you know, a fairly meaningful chunk of that, you know, in terms of given where their market shares at. So, you know, and again, they've invested a lot in digital channels, which has kind of really helped drive incremental growth as well.

Perfect. Now, the other thing with spin dynamics is a lot of times, some of the opportunity presents itself because of the force selling, which we've kind of talked about. But the other time the other way the opportunity often presents itself is you've got this smaller subsidiary that's trapped in a larger piece and they're they're kind of used as the cash cow right where the larger subsidiary says oh that little piece it's 10% of our value we just take the cash flow we bring it upstream and we invested in our bigger businesses and i want to talk about that aspect for wicks because i was really interested you know i'm looking at a quote from their q4 call they said hey it's been several years since we announced a comprehensive new store reopening program

And we're excited to announce we're planning to open 22 new stores over the next couple of years, which their store base is about, if I'm remembering correctly, about 250 stores. So this is a big increase, right? And when I saw that, I was like, oh, this is typical spin stuff. So I do want to talk about like the new store opening program. Why is now the time? Because one way to look at it is, oh, this was a company that had a lot of white space and they couldn't attack it underneath a bigger model. But the other way to look at it would be, oh, this is the Peloton issue, right? Your sales have ballooned over the last two years because of COVID.

Everyone was stuck at home. Everyone was doing store remodeling. And you're using those last two years of really good trends to go just by opening a bunch of new stores. And then two years from now, you say, oh, actually the environment wasn't as good as we thought. And we opened a bunch of stores that are kind of unprofitable. Yeah, no, I think, well, I think this is different to obviously something like Peloton because, firstly, Wix has been consistently profitable. And it's not growing exponentially because of COVID. it's growing steadily at 5% twice the market. Pelotam probably wasn't the right. I more use it as

the, hey, the environment is so good right now and you go on a big gross spree and then a year later you say, oh, the environment wasn't, it was really boosted by COVID. It wasn't that the environment got permanently better and you accidentally over-expanded. Pelotan was just a casual slip. No, I understood. But I think, yeah, so on that point, so the plan is 20 new stores over the next five years. So, you know, that's less than 10% of their existing store estate. And that's, you know, it's not like they're going, rushing out to kind of sign up new leases and try and expand rapidly. That's a fairly measured, modest expansion. And it's probably opportunistic in nature in that the smaller footprint, you know, it's a more efficient footprint to offer, more efficient footprint to operate.

And also, given their scale and where they're at, they're probably secure fairly reasonable lease terms in terms of price per square foot. So I think that doesn't really concern me in terms of an aggressive, you know, over-expansion at the wrong point in the cycle. I think that's going to be measured. I mean, they were clear on the call that that was, I think, over a five-year period. So, and their first priority is refitting the existing stores, which I think there's another 30 or so to go. And, you know, to date, they've achieved, you know, 25% higher sales performance relative to the

older format stores post-refit on. on their refitted stores. So I think their approach makes sense. The refit stores actually was the next thing I want to talk about. Obviously, this is mainly done. There are still stores to do, but they've mainly done it. I think it's 170 of the stores have been refitted at this point. It's about that.

But you just mentioned the stat, 25% sales performance from refitting stores, which that is mind-blowing. Like I've seen, you know, I've seen quick service restaurants who they do a big update and their sales go up like eight. or something, but 25% of a do-it-yourself store getting remodeled, that is a huge sales bomb. So what are they doing at these refitted stores that are driving such huge improvements in sales? So part of that is it relates to their digital offering.

So, you know, you can do the click and collect or online orders. And what they'll do is they'll use their store estate as a distribution network for online orders. So if someone order something online, they'll get it sent to the nearest store. So what they're doing a lot of the time is they're, you know, they're reconfigure. figuring their store formats, freeing up maybe dead spaces, additional storage space to fulfill online as well as servicing the, you know, the footfall that comes in into the store. And as well, with kind of an increase in the Do It For Me revenue segment as well, you know, you've got people coming into the store to get advice on what they want to do on a remodeling

project or a renovation project. And, you know, that in turn, that additional footfall from offering that, which a lot of their competitors don't offer, you know, they're picking, you know, they're driving additional revenues out of that as well. Perfect. I want to talk capital allocation here. So I think when they initially spun, they were talking about paying out, like it was either 18% sticking in my mind, but it might have been 30% of kind of free cash flow would go to shareholders as a dividend. And their new dividend policy is 40% of free cash flow to shareholders as a dividend, which is nice. You know, as we mentioned, this is a company trading very cheaply. So if they're, if they're going to pay

out 40% of cash flow as a dividend. The yield is going to get pretty juicy pretty quickly. But at the same time, I look at that and I say, hey, this is a company that six or six and a half times P.E., you know, probably three-ish times EBOD, depending on how you're cutting the metrics. And I look at it and say, why isn't this a share buyback program? And long-time listeners will know, I love me some share buybacks. But it was a curious choice. So I want to talk about that. And then I might transition into management after we talk about the capital allocation. Yeah, so on the dividends, so yeah, it's running currently at about a 6% dividend yield. So, you know, they did in the, in terms of buybacks, they did mention in the latest results that they, that is on the rate.

That's something that I consider returning surplus cash to shareholders. Now, cash has kind of come down since the half-year point because they've done an inventory rebuild. So that's probably the intelligent thing to do in terms of kind of ensuring supply coming into the spring kind of trading season, which is kind of fairly important for, for the DIY space. So I think chair buybacks will come if they continue to generate cash as they have to date, which I think they will. And so they've got, they want to finish the refit program.

So that's probably the first use of cash reinvesting it for that, which makes complete sense. The dividend is supposed to kind of return some capital to shareholders. And then after that, I think, yeah, the buybacks, if it, you know, if the stock price is still as depressed as it currently is, I think that's the next logical use of the cash. Perfect, perfect. Let's talk management incentives here because this is,

it's a UK company, so they give good data, but I didn't find their, maybe it's just because I'm used to the US companies, I didn't find their management comp quite as easy to do, but, you know, there were some tables that jumped out to me where one of the things with spin dynamics is a lot of times, we talked about how you have this subsidiary that's kind of forgotten and their use as a cash count,

but a lot of times what happens is they're spun off and a lot of entrepreneurial spirit is unlocked because the CEO who used to get paid in the top company's stock, you know, so his division barely managed them. All of a sudden, he gets a bunch of stock options struck in just his company and he says, oh, it is time to go. It is time to create value. And you know, they start growing as it seems Wix is going to start, but the shares come depressed from the selling. The management team gets a bunch stock options and they just go create value, right? They grow the company. They buy back shares aggressively. And I guess what jumped out to me for Wix, I think there was a table that said the CEO, like he owns, his share ownership is equal to like 8% of his annual salary.

If I remember that table, I'm doing that off the top of my head. But you know, I was struck by that and it kind of bled back to the capital allocation where I said, well, maybe if instead of 8% of his salary was in stock, maybe he was eight times a salary in stock, maybe he'd be looking to buy back shares right now. Or, you know, I was just worried about misalignment. of incentive. So am I missing anything? Are you worried about that at all? Yeah, no, you're right. I mean, in terms of spin dynamics, this is the one, the skin and the game piece is the one element of the, of this story that I would like to see more. And so yes, you're correct in kind of what you've outlined there. So management, you know, at the time of the spin, they, you know,

they don't own a lot of stock in the company. There is a kind of an incentive program where they have about, I think the CEO and the CFO now have about 1.2 million pounds worth of shares that options that don't vest for a number of years. But I think one thing that jumped out of me was, I think, two or three days ago, the CEO started buying shares in the market at sub-180 share. So it's a small amount. I think it's about 100 grand worth shares, but that's, that's, this was the first sign. You know, it's a relatively new. management team in that they've been with Wix. I think the CEO's been with Wix since 2019. So kind of prior to the second last year full ownership under Travis Perkins.

So, you know, and he's managed business through COVID and done quite well in that respect. So yeah, I would like to see management going more stock in the business. And I think we're seeing maybe the first signs of that now. Perfect. We have covered a lot here. There are a couple other things I wanted to dive into, but I want to pause for a second here. Again, we've covered a lot. But is there anything you think we glossed over that we should have hit harder, anything we haven't hit that you think we should have hit at this point? No, I think we touched all the key points.

I mean, really, I mean, the other thing I think that is interesting in terms of back to kind of, you mentioned earlier, the macro has gotten worse and, you know, also there's a lot of cash, you know, in the business. I think it's worth pointing out that, you know, the cash balance today is about 26. percent of the market cap. So I think that in terms of kind of thinking about downside, and I always think about downside as much as I do upside in these types of situations, you know, it's, I think that cash position combined with the kind of the resilience of the business, I think, you know,

makes me think there's a lot of downside protection in this setup as well. No disagreement there. A couple other things. So you mentioned there are three different segments of Wix, right? There's the do-it-yourself where somebody's going to go into a Wix store and they're going to buy paint or they're going to buy tools, whatever, and they're going to go home and use it themselves. Then there's the Do-It-For-Me, which you go to the store. And Wix, actually, you know, they have, I think it's a Wix installer, right?

They've got a handyman who's going to go and you say, hey, I want to get my plumbing redone or something. Wix is going to, plumbing might be too advanced, but I don't know. They're going to send out a guy, Wix is going to manage it end to end, right? And then there's the trade-fi piece where if you're a serviceman, I'll just stick with, a painter. You're going to go to Wix. You're going to buy paint from them. And then you're going to go to do the job yourself. So you found the job on your own. You're just using Wix for a supply. I want to talk about two of those different pieces. The first is the Wix installer piece. One of the things, I think three people

pinged me on Twitter when I said we were looking at Wix and they said, hey, I've looked at it or I was a customer there. And one of the things that stopped me was the Wix installers, the Wix installers had awful reviews or my experience with a Wix installer was awful. And I'll let you talk about that in a second, but that there is something to that, right? Like one of the stocks I've looked at a lot is Angie's list. And one of the constant bare pushbacks is if you're a good plumber, you're a good electrician, you don't need Angie or you don't need handy to give you business, right? Like you've got more business than you can ever do.

The only people who go on Angie are the really bad plumbers or the really bad electricians, you can't get repeat business. So is there something to like Wix installers are actually the installers, the handymen, whatever it is, who actually can't make it on their own. the Wix installer service is a lot worse than a normal installer, which, you know, kind of has broad implications for the brand. Yeah, no, I think, listen, I've seen a lot of those reviews. I've done a lot of digging on those reviews as well.

I've looked at, you know, on Reddish on some of the threads there as well. And, you know, there is a mixed, you know, I suppose review, a pool of reviews there for Wix. But what I would say as well is that when you look at some of the peers as well, and look at maybe being Q as well in terms of customer service and customer satisfaction, their feedback has been pretty mixed as well. So I don't think there's a huge amount between them. But what I would say is that this is, I suppose, this is kind of one of the newer segments for Wix,

and it's, you know, it takes time to build it up and kind of sort out your installer base, your installer network. COVID and the pandemic certainly wouldn't have helped that when there's a shortage of labor. and you're trying to source right people to fulfill orders because Wix's order book is twice what it was coming into the start of last year. So it has a huge pipeline of work there. And I think that also gives an advantage

in terms of recruiting, you know, installers in that. You know, with increased uncertainty, you know, in UK kind of UK macro uncertainty, you know, you've got a, you know, installers are going to see this, you know, kind of a clear, reliable pipeline of work that will take them through this year at least and into next year. So I think that actually will support sales. The order book will support sales. And also, I think it will attract kind of installers as well in terms of ensuring that Wix

can actually deliver on then on the pipeline. Yeah. Now, look, I do with you. And one of the other things about home reviews is it's really tough because if you have a great plumber. or a great electrician, you're probably, it's one of those things that fades into the background a little bit, right? You're probably not going to go online and sing their praises. But if you have, you know, if you're a plumbering, you do 100 jobs and 99 of them are great and one of them for whatever reason is awful, guess what? You're going to have two reviews online. One of them's going to be great and one of them's going to be awful. So it's just like such a negative sample bias there on the reviews. Though at the same time, I googled Wix installer and, you know,

the results four, five, and six are two, one and a half star ratings on 1,500 views. So it's both sides of the coin. Yeah. No, I think, listen, I've done the same thing, and I've looked at a number of different computer platforms, and it is a mix. And I think it does apply to their competitors as well. But I think, listen, I think this is something that they'll, they'll improve on over time. You know, it's a core part of their business now.

it's a growth area for them. And so I think that's obviously an area of real focus for them. Perfect. The other piece of their business, so we mentioned there's do it for me. That's the Wix and Sauer. We just talked about that. Do it for yourself, which I don't think we need to talk about like you're, but the other piece is the trade pro business, right?

And the trade pro business is, I believe what it is if you're a candy man, whatever it is, you sign up for the Wix Trade Pro program and Wix gives you 10% off everything in their store. And Wix has talked about we've got this great. base. I think they said, hey, we signed up, I'm trying to find the thing as we talk, as we talk. They signed up tons of people and I'll give the numbers in a second, but yeah, it's, there's 630,000 members on the trade poll program. So that's growing about, that's grown from 550 this time last year. So that's growing nicely as well. Yeah, so they added 80,000 people in

2021. So more than 10% growth in 2021. And then they said, hey, in the first 10 weeks of the year, we added another 26,000. So this thing's growing very quickly. And they, got all sorts of plans for what they're going to do with it. They want to increase the value and everything. And I just want to talk about the trade pro app that do it for me. Like, how valuable is that really? How valuable is that really? Do you believe that there's any, like, as they get all these people, can they add incremental? Or is it, you know, the grocery store around my corner. They do, hey, we give you 10% off of your member. But guess what? Their prices are just 10% higher than everywhere else. And they're just trying to get your phone number and stuff. Right. So how much

value does this really add? Does this make customer sticky? Can they create more value from this? I think it does add real value because when you go online and you kind of price compare certain products again you know Wix can be slightly cheaper I mean a lot of the retailers now would try and price match

but on the Wix app you know it does from the bits I've seen it certainly does seem to be that kind of 10% cheaper and I think you know again it kind of it builds customer loyalty

Wix reliably stock for kind of a selected range of essential kind of DIY items so you know the members know what they're getting, they're going to come back to it again. And, you know, with when they need to get something, you know, they know what they're getting. You know, again, that that act is kind of being expanded in terms of targeted, you know, offerings and so depending on the type of jobs that they've got, you know, they keep, they're able to track the type of products, people have bought,

what kind of, you know, they're able to discern then what type of project products. Did they do bathrooms or do the kitchens or tiling or whatever? And so they can kind of build up and, you know, customized customer profiles and kind of, you know, again, kind of just optimize what they offer those customers. Yep. Yep. Two-thirds of their sales, if I remember correctly from the annual report, two-thirds of their sales are digital. That kind of surprised me for a, you know, a do-it-yourself store, a hard goods store that people are going to go to. Is there anything going on with that number? Is that just COVID boosted or is this really an online business that's it's online and it's just got the physical storefront to drive the online side?

Well, about two-thirds, what they mean when they say that is that, you know, about two-thirds of total sales are involved some kind of part of their digital ecosystem that they use. So it's not, it's not 66% of sales being ordered off their website. It's maybe click and collect will be included in that, for example. Well, click and collect is huge, right? Because that Omni-Channel thing, one thesis I've had and one thing that's been dancing around the back of my mind, which I didn't say, but like, you know, this is 250 stores. they have an online presence. If there is a mom and pop store that is in one of their markets, right? The mom and pop store does not have the scale to do the online, the Omni Channel, the buy now,

pick up in store. They don't have the scale. So one thing I have thought about recently, and this applies to all retailers, is, you know, sporting goods stores. Academy and Dix, there's a lot of stuff going on with Nike cut off a lot of smaller sporting good stores. But, you know, if you're the mom and pop sporting goods store competing with an Academy and Dix, you don't have that buy on. line pickup and store capability. And I think it's probably the same with Wix, where their

scale gives them capabilities that no one has and that should let them be a consistent scale gainer over time. Yeah, exactly. Yeah. I mean, they have, they have a wide range of suppliers, so they've about 370 different suppliers. So they can, you know, they're buying power, their sourcing power for the product range that they have. You know, local stores can't really match that. And then, you know, when you're looking at, say, the competitor like B&Q, which is, you know, the much larger competitor, it's a different offering. So it kind of it kind of, again, you know, it's kind of focused on its own kind of target segment of the market, which I think kind of differentiates it. So it kind of, you know, kind of hits that

real need in between kind of the very small local independent operator and then the, you know, the mass, you know, the big box retailer. Perfect. There is a line in there in your report, and I also think they were asked about this on the last call. They still have 30 million in spin-off, I think it's like dis-snergy costs that are less than 500 million market cap company adjusted EBDA for 2021, as I mentioned earlier, was 220. So that 30 million is a big cost. So I guess I had two questions. A, what do they have left to kind of pay this 30 million cost? Like what is left to be done? Because anybody here's spin-off costs and there are worries, right? I've seen cases of really bad, ERP, you like spin-off thing. So there are worries about cost escalating. The company

just getting run out of control because they can't handle it. So that's number one. And then number two, which is probably a little simpler, the 30 million, are these one-time costs that they need to pay? So I could kind of just deduct that 30 million from their cash balance if I wanted. Or is this 30 million of like kind of ongoing annual costs. So their 220 million EBITDA is actually going to be 190 million if they're run rating the same thing in a year. No, it's once off. in nature. So it's about 30 million of demurger costs that they'll have to pay down or kind of clear over this year and into next year. So it's kind of over 18 months. So I could probably just pull it from the cash number if I really wanted to. Yeah, exactly. That's how I think about it.

And what are the remaining costs? I mean, is this hiring, you know, one of the great things about a merger, you have a CFO, I have a CFO. Guess what? Your CFO is probably gone if I'm buying you. Is this hiring like, obviously they've got a CFO and CO, but is this hiring a full? accounting team? Is it investing in ERP? Are there other costs I'm kind of not thinking about? No, I think the types of costs involved, I think are they, as part of the

spin, they would have had a kind of a transition agreement with Travis Perkins in terms of kind of de-integrating themselves out of, you know, Travis Perkins systems and so on. So I think a chunk of it is related to IT costs and other things just in terms of, you know, pulling them, totally extracting themselves out of Travis

Perkins and kind of, you know, standing on their own two feet. Perfect, perfect. Anything else we should be talking about with Wix? I think we've gone through everything I want to talk about. No, I think, I mean, the thesis in my view is pretty simple. I mean, it's very cheap. It's a pretty resilient business. It's got good growth prospects relative to other retailers. And I think, you know, the share price just reflects, you know, really non-fundamental selling. And again, you look at private market assets, which I think given indication as to what maybe the real value of this business would be, and it kind of suggests

it should be much, you know, it should be much higher than the current share price. No, look, I will tell you, I read this when you wrote it up, but as I was prepping for this podcast, again, one of my big themes recently has been, I think, retail a lot of retailers across the board are too cheap. But, you know, I've got to get comfortable with the accounting, and I've got to do a lot more work. But as I was reading, I was like, look, this is probably if I talked about something like Foot Locker, right? Foot Locker is trading it. three times ebidot-ish. But guess what?

That is a lot more discretionary. They've got a lot of issues with, we don't have to talk about it here. I've said it a few times in the pot. They've got a lot of issues with Nike's pulling back on their supply, and Nike's like 70% of their sales. So Nike pulling back on their supply is an issue. A lot more discretionary,

probably a lot more exposed to online trends, a lot of mall retail, you know, whereas Wix is like, hey, a lot of the stuff are in their favor, right? Like you can see the multiple Home Depot and lows trade at. Yes, there are some risks here. Yes, maybe they got a little. COVID bump, but the U.S., the U.K. housing stocks, and where it's aging. I don't think those

trends are going anywhere. They've got a lot of online advantages. I think they're going to continue taking mom and pop. So super fascinating situation. You know, we've almost hit an hour, but I'm looking at your Q1 situation review. I'm looking at your weekly bulletin. I'll include a link to both Connor's blog and his Wix write-up in the show notes. So everybody should check that out. But, you know, what else is top of your mind right now? What other situations are you kind of following? I'll put you on the spot. Yeah, well, I think, well, there's a few, I've kind of a pipeline of maybe four or five ideas I'm working on at the moment,

which I'd probably publish over the course the next couple of months in the newsletter. I mean, I kind of, just like you mentioned, the Q1 review. So I think, you know, the names I've kind of focused on so far have kind of done reasonably well, you know, on balance, I think, you know, Doe, which is around the first one, which I had a lot of conviction around, that really hasn't worked out. Just, yeah. And I think, you know, I'm constantly asked about that one. But, you know, I think, you know, that, that, that the thesis, my thesis on that hasn't really

changed. I think that's still, you know, I think that's more a case of familiarity. You know, it's, it's, you know, there's still the perception that it's David Murdox company and so on. And it's really not. It's a very different business now. You know, so I think that, that I find still very interesting. I think some of the, can I ask you a quick question on, Joel?

Look, I haven't been super up to date on the situation since last summer. But, you know, inflation's top of everyone in mind. Supply issues, inflation, all this sort of stuff. Is Dole really benefiting from the supply chain tightness? You know, you see a lot of companies, supply chains get tight and their profits go way up because they get pricing power. Or are they really hurt because, you know, just all the issue is supply chain, playing a bunch for fright, having trouble getting products to market, all that type of stuff. Yeah, I think, I mean, that's obviously one of the big kind of concerns with Dole from a number of people I've spoken to, but I think about Dole is the, it's the largest fresh produce business in the world by fact, it's two times greater than it's the next, you know, largest peer. It owns its own global supply chain infrastructure. You know, so it owns its own ships. It owns farms. It, you know, it owns all its distribution warehousing centers. You know, so it has control over its supply chain. And so that obviously gives an advantage.

And I think then in addition to that, they've actually agreed price increases with all their customers across the business for 2022. So that should protect margins. That should offset any price increases that they suffer on the cost increases that they suffer on the input side. So I think they should be able to hedge that out on the inflation side. And I think, again, you know, step in the market, they sell, you know, fresh produce.

This is about a staple as it gets. And, you know, they've over 700 fruit or vegetable categories. So, you know, that's not something that's going to, you know, suddenly not be in demand. Anything else? I mean, I know you've got yellow cake uranium, Willis Tower Watson, which probably jumps out because you've got all these quirky international situations. And then you've got Willis Tower Watson, this large cap U.S. broker, which I know the story, merger break and all that. But anything else you jump out that our listeners, if they're looking to cheat off, you should kind of ramp up to speed quickly. Yeah, I think one of the names I've covered

is Kenmer Resources, which is a mineral sand miner. I think that's a really interesting situation. I think that a very unique asset. And I think that's worth, I think people having a look at it if they're interested. I actually did a podcast with T-Webbs on that previously. How dare you? How dare you? Good sir. So that's a good one. That's an interesting one. Yellow cake you mentioned, I think uranium, I think probably of all the commodity themes. I think that's possibly the most interesting in terms of, you know, the asymmetry there, I think, is really compelling.

I will be honest. I have not read the Kenmare piece yet. What resource does Kenmare mine? So its main product is Ilmanite, which is a mineral sand that's used in a, titanium oxides, which is used in pigments, titanium metal, you know, all kinds of industrial applications. So, you know, again, similar to a lot of the other commodity setups, very tight, constrained supply, strong demand,

probably getting stronger now with increasing defense spending and, you know, titanium metal as a, you know, a key commodity is that part of that theme. So that's an interesting one. And can marry is a very unique asset. and very unique kind of play within that team. That's really interesting. And I see they've got share buybacks, which you know I love. No, you know, Kenmare, just all across the board with Commoddy plays,

it's where I've been spending a lot of time recently because I keep looking at these. And I've said this before. So if people read the blog, I'm probably just repeating myself. But, you know, I look at these things and there's companies with U.S. domestic net gas people, right? The long-term net gas has gone from, you know, 2026 pricing has gone from, from three to probably $4.50 over the past six months. And you're seeing these stocks and yeah, some of them have gone up 10, 20, 30 percent. Some of them have gone off more.

But if your key input has gone up by 50 percent, like your overall value has gone up actually more than 50 percent because it basically falls to it. But like it just seems that the stocks have priced it like the long term trend has gone from three to three, 25. And it's like, no, like these guys could go hedge six years out at 450 right now. And I'm seeing this diversion across the board. And it sounds like Kenmer is the same thing where it's like their price is going sky high and the stock just doesn't seem to believe it.

And I'm not sure what I'm missing. Yeah, well, in the case of Kenmare, it's a pretty obscure stock. You know, in terms of mining, mineral sand is very obscure. Kenmer is an Irish company that owns a mine in Mozambique. And, you know, it's got a single 100-year mine. Well, yeah, that explains a lot of price lagging there. That's a, that's an instant pass for 99% of people. Yeah, and it's got about two or, I think two or maybe three analysts covering it.

So it's very underfollowed. But, you know, it's a, it's a kind of globally important commodity that it produces. So it's just under the radar. Yeah. And it's under the radar, but I'm just stealing from your write-up. But, you know, 100 million in capital return to shareholders in fiscal 2021, 21, 215 million of EBITA, 160 million of free cash flow, like, yeah, it's under the radar. But this is a real company, right?

They're being run professionally. They're returning capital to shareholders. Where was their mind? It's in Mozambique. Any, you know, other than the normal geopolitical risk, any other geopolitical risk with that mine? So, I mean, there's two things I suppose to think about it. Firstly, there's, I suppose, in some African countries, this question marks over governance

and relationship with the government and, you know, the kind of the risk there that something could be seized. So on that front, Ken Mayer have been in Mozambique since I think 1987. So they've a very long history of working in the country. They've invested a lot in the local community. They've built schools. They've built, you know, medical clinics and so on. So they invest a lot around the area around the mine.

The government makes, you know, gets royalties off the mine. It also gets, you know, tax revenues from the mine. It's a big employer in the region it's in. So I think from that kind of just general political risk perspective, I think it's okay. I think it's, you know, I'd be reasonably comfortable with it. The second one then is this kind of, you know, there's a kind of a, I think an insurgency, a militant insurgency elsewhere in Mozambique, I think it's about 700 miles away from, from where Ken Marr is located. So again, it's pretty far away. And I think that insurgency has

been kind of quelled by, you know, by peacekeeping forces and government forces on. So I think that's not as big a risk as maybe people, as maybe some people might, might, might, of that, you know, it's like... Perfect, perfect. Well, Connor, this has been so great. You know, anyone who's not following your values that should, it's one of the best substacks out there. My biggest fear, I'm going to invite you back on the podcast.

I'd love to have you on next time you have a great idea. But my biggest fear is somebody's going to hire you away and the value sit substack is going to get closed because that does seem to be a trend among many of my favorite substack people, which I'm very happy for them. but selfishly, I'm a little sad to see them go because I lose podcast guests and I lose a great source of a great source of idea flow. So that is a hint. I don't know what you do, actually, but that is a hint if anybody's looking for a great global analyst. Connor, you should at least follow about you said. So anyway, any last words from you? No, thanks for that, Andrew. Thanks for

the kind of words there. No, it's not, I'm really enjoying writing the newsletter, getting good traction, getting to, you know, get in touch with a lot of interesting people like yourself. So no, it's definitely something I intend to do. So just all about coming up with the next idea. It's the best thing about writing it. People ask all the time, why do you do the podcast? Why do you do the blog? It's like the best thing about it, A, I really enjoy it. But you meet so many cool people who you never would have met. You know, this job, a lot of it is just sitting at my apartment. Penny's behind me. But, you know, it's just you buy yourself looking at screens. And the people you meet from the podcast and the blog, it's the best part. And you're one of them. So, Connor, thank you so much for coming on.

Looking forward to having you in the future. And we'll chat soon. That's great. Great speaking, Andrew. Thanks for time.