skip to main content
Find Insight DIY on
* * *

UK DIY News

Public sector cuts could hit Travis Perkins hard

Builders' merchant Travis Perkins, owner of Wickes, gave some much-needed cheer to the stock market on Friday when it said it had performed ahead of expectations in the first half, with like-for-like sales up 3.4pc. Geoff Cooper, chief executive, said the company would look to resume dividend payouts with a 5p interim dividend, after cancelling shareholder payouts in February 2009 as its markets slumped.

The trading statement marked a sharp turnaround for Travis, which said in February that it did not know when its markets would return to growth and warned of "probable false starts" in the economic recovery. However, since then the company has become something of a favourite among analysts, 10 of whom have Travis Perkins as a strong buy, with the group trading at a relatively cheap 10.8 times 2010 earnings.

In addition, a £553m deal to buy BSS, the plumbing supplies company, could be announced as early as this week. Analysts at Liberum Capital believe the business could add 16pc to 2011 earnings, but despite this Travis Perkins shares have fallen 5pc since the company confirmed its approach for BSS in late May.

The trading improvement for Travis has been driven by its merchant arm, which accounts for roughly two-thirds of sales, where housebuilders have in particular picked up demand. After driving down inventories in 2008 and 2009 to meet stalling demand for homes, new construction sites are being opened again as consumer confidence improves. Given that housebuilding remains at the lowest levels since the 1920s, a further economic shock is unlikely to damage construction levels significantly more. Therefore, this demand can be considered relatively robust.

However, Questor does has concerns about general trade demand for Travis Perkins, with around 8pc of the division likely to come under pressure from public spending cuts. Also, as Mr Cooper said, there are likely to be "false starts" in the recovery and some bumping along the bottom that could affect private sector customers. Questor does not feel confident with this lack of visibility, so, despite the dividend resumption, recommends investors avoid the shares.

Source : Graham Ruddick & Harry Wilson - Telegraph.co.uk

03 July 2010
view more UK DIY News
*

Thank you for the excellent presentation that you gave at Woodbury Park on Thursday morning. It was very interesting and thought-provoking for our Retail members. The feedback has been excellent.

*
Martin Elliott. Chief Executive - Home Hardware.
Newsletters

Don't miss out on all the latest, breaking news from the DIY industry