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Travis Perkins suffers following investment

The group's statutory results look positive, but the adjusted earnings tell a different story
March 1, 2018

Statutory numbers from Travis Perkins (TPK) suggest the builders merchant had a stellar year in 2017. But impairments taken against the plumbing and heating businesses the year before actually made for a very low comparable. On an adjusted basis the picture is less flattering, with operating profits falling 7.1 per cent to £380m. This prompted a share price drop on results day, dragging the shares down to a 12-month low.

IC TIP: Hold at 1,328p

Management blamed the disappointing performance on “investment in a higher cost base" which "ran ahead of volume growth”. These investments include extending supply chain capabilities for lightside and heavyside products to all branches of Travis Perkins in England and Wales. As a result, the general merchanting and consumer divisions suffered profit declines of 5.2 and 18.8 per cent, respectively.

Over the long term, the group expects other factors to drive growth, namely the requirement for more homes and structural underinvestment in repairs, as well as maintenance and improvement of housing and infrastructure. It does concede, however, that recent indicators such as consumer confidence and housing transactions have been mixed and are expected to stay that way.

Analysts at JPMorgan Cazenove cut their adjusted EPS forecast to 113p for 2018, from 120p previously (from 111p in 2017).

TRAVIS PERKINS (TPK)  
ORD PRICE:1,328pMARKET VALUE:£3.35bn
TOUCH:1,327-1,328p12-MONTH HIGH:1,709pLOW: 1,304p
DIVIDEND YIELD:3.5%PE RATIO:14
NET ASSET VALUE:1,130p*NET DEBT:12%
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20135.1531311031
20145.5832110638
20155.9422467.844
20166.2272.75.145
20176.4329093.146
% change+3+298+1725+2
Ex-div:05 Apr   
Payment:11 May   
*Includes intangible assets of £1.93bn, or 764p a share