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Travis Perkins boosted by DIY boom

The building materials group's second-half recovery was driven by its retail operations
Travis Perkins boosted by DIY boom
  • Retail businesses drive second-half earnings thanks to home improvement demand
  • Restructuring merchanting operations pushes the group into a pre-tax loss

Travis Perkins (TPK) might be targeting the trade merchant market to drive future earnings growth, but it was the retail businesses that propelled the recovery during the second half of last year. 

A strong domestic repairs, maintenance and improvement (RMI) market, buoyed by booming housing transactions, pushed like-for-like revenue at Wickes up almost 6 per cent. Toolstation, which opened branches offering ‘click and collect’ services during lockdown, increased underlying revenue by a similar proportion. A further 60 new branches were opened during the year. 

Strong performance from those businesses meant the decline in operating profit was less than feared, coming in ahead of analyst forecasts for the year. The demerger of Wickes has been recommenced and is due to complete during the second quarter of the year. Meanwhile, the group is still searching for buyers for its plumbing and heating operations, which suffered a 10 per cent contraction in revenue. 

A slower recovery in demand from commercial construction and housebuilding meant sales volumes for the merchanting business were still down by between 10 and 15 per cent during the fourth quarter. The branch closure programme continued, with a further 138 stores shut. Restructuring costs associated with store rationalisation drove the pre-tax losses sustained last year. 

The reopening of stores should provide a natural rise in earnings this year, although the pace of retail sales growth will depend on whether the home improvements market continues to boom. Further government support measures for the housing market could provide a fillip to demand. Yet a forward price/earnings multiple of 15 is broadly in line with the valuation attached to more resilient peer Grafton (GFTU). Hold. 

Last IC view: Hold, 1,437p, 4 Mar 2020

TRAVIS PERKINS (TPK)   
ORD PRICE:1,438pMARKET VALUE:£ 3.63bn
TOUCH:1,437.5-1,439p12-MONTH HIGH:1,509pLOW: 574p
DIVIDEND YIELD:NilPE RATIO:NA
NET ASSET VALUE:1,076p*NET DEBT:51%
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20166.2272.75.145
20176.4329093.146
20186.74-49.4-34.447
20196.9618148.915.5
20206.16-7.7-8.8nil
% change-11---
Ex-div:na   
Payment:na   
*Includes intangible assets of £1.67bn, or 663p a share