Travis Perkins weighs up its own Brexit

There weren’t many surprises in Travis Perkins’ (TPK) annual results, mainly because the company had trailed a 40 per cent cut to its adjusted operating profit to £180mn in January. Once a bunch of restructuring and other one-off costs are added in, however, earnings per share fell by 80 per cent. 

Cuts had already been announced, and the company reported closures of its Benchmarx network of kitchen showrooms, as well as a couple of distribution centres serving the Toolstation business. The unexpected bit was the announcement that it is looking to exit the Toolstation business in France and has placed the Belgian arm under review.

While this raises legitimate questions about strategy – it had been pouring money into the expansion of Toolstation in Europe up until last year – it is understandable given the need to bring costs under control.

Although new chief financial officer Duncan Cooper insisted the company “still has a very robust balance sheet”, the combination of weaker profits and a higher interest burden meant net debt increased to 2.6 times adjusted cash profit, well above its medium-term target range of between 1.5 to 2.0 times. 

Losses in Europe are also mounting – from £30mn in 2022 to around £37mn last year, which was before a £33mn goodwill impairment recorded on the French business.  

With the UK market remaining weak, it is encouraging that tough decisions are being taken. Travis Perkins’ shares have lost a quarter of their value over the past 12 months but with the company guiding towards a further weakening of adjusted operating profit this year to £160mn-£180mn, the forward price/earnings ratio remains above its five-year average. 

And with further restructuring charges likely this year, it looks like one to avoid. Sell.

Last IC View: Sell, 993p, 01 Aug 2023