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Travis Perkins shares measuring up well in embattled construction trade sector


Travis Perkins [LON:TPK] admitted to challenging market conditions when it reported to the market that profits were down by almost a third for the six months to 30 June. The numbers cannot have been much of a surprise to investors, given the company’s massive exposure to the British building supplies sector.

Market conditions within the UK building trade are looking really challenging at the moment, with canny investors cutting their exposure to both housing and commercial property. Travis Perkins said it was in the middle of a tough balancing act between maintaining some level of shorter term profitability, while also delivering on its longer term strategic objectives. Near term trading is expected to be difficult, the company said.

Berenberg Bank has set a target price of 955p for Travis Perkins. But this is flying in the face of a horrendous market for the building trade purveyor. New build housing and private domestic RMI markets were reported off by 4.5% by Travis Perkins, although there were some glimmers of hope – its Toolstation brand reported revenue was up 9%.

Travis Perkins results in summary

  • Surplus falls to £112m, off by 31%
  • Adjusted earnings per share 30.5p (down 41%)
  • Revenues down 2.5% to £2.47bn
  • Full year adjusted operating profit expected at around £240m

Currently Travis Perkins shares are down over 5% in the last month, and 18% over the six month period. The PE ratio stands at 12.16, with a current dividend yield of 4.7%.

Travis Perkins is currently rated at a Hold by BridgeWise, the artificial intelligence stock analysis specialists. Travis Perkins is considered to be holding its own across key metrics like cash flow, income and its overall balance sheet. The declaration of an interim dividend at 12.5p was considered a positive factor, supportive of the stock in the medium term. The 8% drop in the company’s book value (0.87) is a risk item to watch.

In terms of peer performance, Travis Perkins trades at close to the average performance of UK stocks in this sector. Its core metrics measure up well against some larger competitors like Ashtead and Bunzl.

Travis Perkins’ balance sheet metrics appear to signal strong support and a high likelihood of some positive growth going forward. Management seems to have been successful in improving the company’s cash and cash equivalent metrics. Statistically, the solid management of liabilities are also more likely to contribute to some positive growth in this sector. The company’s revenue efficiency also looks excellent for this area of the market.

Travis Perkins also looks likely to maintain strong cash flow metrics and momentum. Published capital expenditure numbers look encouraging and reflect a balanced change strategy. From a high level perspective, we don’t think the UK construction market has seen the worst of it this year, but going into a tough winter, Travis Perkins looks in good shape.

Any good buys still in the building materials sector?

Investors will be wanting to know if there are still any star performers in a UK building sector already being battered by some significant headwinds. Two possible outperforms may be worth looking at in the space:

  • On the large side, Diploma [LON:DPLM] has released some positive financial numbers, with the spotlight on growth in the return on equity ratio and EBITDA. Watch out for Diploma’s exposure to global supply chains though, as that bugbear has not gone away. Diploma is rated an Outperform by BridgeWise.
  • Also scoring well is Andrew Sykes Group [LON:ASY]: with a much smaller market cap this could be a lot less liquid than Travis Perkins, but the stock price is bucking trend in the sector, up 17% in the last six months. The share price has done less well over the summer, but it is holding its own. Andrew Sykes reported revenue up 14% year on year in its last report to the market, with net income up 13%.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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