What's new:
■ Strong rebound after slow start to the year
■ Net debt still falling
■ Indicative offer to buy BSS
News of a 2.2 per cent rise in turnover in the first four months of the year at Travis Perkins was overshadowed by the proposed purchase of rival building materials specialist, BSS. The £533m offer values BSS at 433p a share and comprises 232.91p in cash and 0.2608 new Travis Perkins shares for each BSS share - as well as the payment of BSS' final dividend of 6.09p a share.
Meanwhile, Travis Perkins continues to trade strongly and reported that sales on the merchanting side rose 3.3 per cent year-on-year in the first four months. That improvement was even more marked after this year's bad weather period ended, which hit in the fist two months of the year, with like-for-like sales in March and April up 6.1 per cent - a trend that has continued into the first half of May.
On the retail side, where Travis operates through the Wickes DIY chain, trading was tougher. But while like-for-like sales of Wickes' core products fell 5.1 per cent in the first four months, the decline in the last nine weeks has slowed to 3.8 per cent.
Shore Capital says...
Buy. The BSS move looks like an attractive deal, but there's an element of risk because of the possibility of a double dip in the economy. Even Travis Perkins hasn't called the bottom of the market, warning that trading conditions will remain challenging. If successful, the BSS deal will take debt up to about £800m, not excessive in the current climate - but a potential worry if the economy contracts again. Either way, buying BSS will put Travis in a very strong position when the economy does start to recover. Expect 2010 pre-tax profits of £209m and EPS of 73.4p.
Davy Research says...
Outperform. At first glance, BSS bid is good news. More details are awaited, but the cost of the bid will not overburden the balance sheet, and there will be further synergy benefits from integrating the two businesses. Group finances look to be in pretty good shape, too. Debt levels, before the BSS bid, have continued to fall - helped by the sale of a freehold site in Guildford for £18m. The group has also bought back £84.3m of its term loan at a discounted rate, realising a profit of £2.6m. Expect 2010 pre-tax profits of £208m and EPS of 75.5p.
