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Plumbing problems at Travis Perkins

An otherwise workmanlike performance has been hit by write-downs in the heating and plumbing business
March 2, 2017

Problems in Travis Perkins' (TPK) plumbing and heating division contributed to an exceptional non-cash charge of £235m against goodwill and tangible assets in its full-year results, as well as a further £57m to cover the closure costs of underperforming branches, supply chain rationalisation and restructuring. Otherwise, the builders' merchant managed last year's challenges reasonably well, with adjusted operating profit edging ahead to £392m. But the nasties sent the share price down 6 per cent on the day.

IC TIP: Hold at 1470p

The plumbing and heating market has been flat in the last few years, hit by lower repair, maintenance and improvement (RMI) volumes and stronger competition including online operators.

At least the consumer and general merchanting divisions delivered higher profit, helping drive overall cash conversion up from 77 per cent to 107 per cent. That helped fund capital expenditure of £187m. This included a further 43 Toolstation stores and 18 Benchmarx kitchens outlets. A further 600 product lines were added as well as a two-hour click-and-collect service for Travis Perkins' merchanting outlets. Some 46 Wickes stores were refitted, and now provide a one-hour click-and-collect service as well as one-hour time slots for home deliveries.

Analysts at Peel Hunt forecast adjusted pre-tax profit of £403m for the year to December 2017 and EPS of 132.6p (from £381m and 120p in 2016).

TRAVIS PERKINS (TPK)
ORD PRICE:1,470pMARKET VALUE:£3.69bn
TOUCH:1,468-1,470p12-MONTH HIGH:1,978pLOW: 1,090p
DIVIDEND YIELD:3.1%PE RATIO:288
NET ASSET VALUE:1,056p*NET DEBT:14%

Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20124.8429910425
20135.1531311031
20145.5832110638
20155.9422467.844
20166.22735.145
% change+5-67-92+2

Ex-div: 13 Apr

Payment: 26 May

*Includes intangible assets of £1.89bn, or 753p a share