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Travis Perkins strives to simplify business

The supplier of building materials has dramatically scaled back its operations
March 1, 2022
  • Group sells off plumbing and heating division
  • Share buyback scheme extended by £70mn

Travis Perkins (TPK) had a busy year in 2021. In April, the supplier of building materials demerged its Wickes business after a string of Covid delays. A month later, it sold its plumbing and heating division for £325mn in a bid to simplify the group. Its efforts seem to be paying off: like-for-like revenue is up across its core divisions and profit margins are improving. 

Travis Perkins supplies both trade professionals and self-builders. In 2021, its merchanting business increased revenue by 25 per cent compared with 2020. More importantly – given the impact of the pandemic in 2020 – sales are also 3 per cent ahead of 2019. 

So far, the group seems unfazed by inflationary pressures. Management said its merchanting arm has managed the challenges “extremely well”, using its “extensive supply chain expertise” to maximise product availability. Their optimism aligns with the profit figures: adjusted operating margins in the merchanting division have risen from 5 per cent to 8.4 per cent year on year. 

Analysts are more struck by the performance of Travis Perkins’ retail arm, Toolstation. Its UK operating margin reached 6.3 per cent in 2021, higher than Liberum’s 5 per cent estimate. Analysts said this suggests profitability is improving faster than expected as the network matures.

And it is maturing. Toolstation has more than doubled its revenue in the last three years and a further 60 branches are expected to open in 2022. However, total operating margins are still extremely low at 2.9 per cent. Meanwhile, return on capital employed (ROCE) – which compares operating profit with the money invested – sits at just 4.5 per cent, up from a dismal 1.8 per cent in the previous year.

Adjusted operating profit across the group as a whole reached £353mn in 2021. This was around 5 per cent higher than analysts' estimates. The group was given a boost by additional property profits, after vacating freehold and leasehold sites as part of its restructuring plan. Total property profits amounted to £49mn.

Indeed, Travis Perkins’ results are filled with one-off perks. Proceeds from the sale of the plumbing and heating business were returned to shareholders, for example, in a special dividend of 35p in November 2021. Meanwhile, management has extended its share buyback programme by £70mn, taking the total to £240mn. 

The question is whether Travis Perkins’ core activities can deliver strong returns going forward. There are a number of encouraging signs. For now, however, margins are still tight and Toolstation’s ROCE remains weak. Hold. 

Last IC View: Hold, 1,697p, 3 Aug 2021

TRAVIS PERKINS (TPK)   
ORD PRICE:1,437pMARKET VALUE:£3.1bn
TOUCH:1,436-1,438p12-MONTH HIGH:1,800pLOW: 1,315p
DIVIDEND YIELD:2.6%PE RATIO:14
NET ASSET VALUE:1,042p*NET DEBT:27%
Year to 31 DecTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
20176.4329093.146.0
20186.74-49.4-34.447.0
20196.9618148.915.5
2020**3.70-20.3-14.3nil
20214.5930610438.0
% change+24---
Ex-div:31 March   
Payment:13 May   
*Includes intangible assets of £979mn, or 456p a share **For continuing businesses only