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Demand for repairs boosts Travis Perkins

Its long-term prospects are tied to the continuing growth of the housing and construction markets.
August 3, 2021
  • Increased full-year guidance to “at least £310m of adjusted operating profit”.
  • Interim dividend reinstated at 12p per share.

Building materials supplier Travis Perkins (TPK) is benefiting from the release of built up demand in the repair, maintenance and improvements (RMI) market. Like-for-like revenue from continuing business was up 44.1 per cent compared to 2020 and 14.5 per cent against 2019 driven by “both domestic and commercial RMI”. Travis’ medium term prospects are dependent on whether this building improvement trend is a short-term surge due to the pandemic or a more permanent change in household behaviour.

Merchanting, which sells to professional builders, grew its revenue by 37.5 per cent compared to HY 2020. Toolstation, which is the retail portion of the business, grew by 38.7 per cent. This combination led to group operating profit jumping to £164m, 14 per cent ahead of 2019. Impressively the group has also managed to improve its operating margin by 20 basis points since 2019 despite “shortages in raw materials such as timber and plasterboard” leading to inflationary pressures.

Travis has managed the inflationary pressures through a combination of cutting costs and passing on prices to its customers. It is easier for it to pass on prices in the merchanting business, with 4.2 per cent of its like-for-like revenue coming from pricing changes. Add these rises to the closure of 144 branches – which was announced last June – and it explains a lot of the improved profit margin.

As well as closing branches, the business has also been streamlined by completing the demerger of Wickes and the agreement for the sale of the Plumbing and Heating business to H.I.G Capital for £325m. This is expected to be completed in Q3 and the proceeds will be paid to shareholders via a special 35p dividend.

The management outlook is understandably optimistic, citing “ongoing demand for new housing” and “historic underinvestment in repair, maintenance and UK housing stock” as reasons to be bullish about the long-term fundamentals of the business. Both these statements look plausible. The UK’s rising house prices are clear evidence of a shortage. Alongside this, Office for National Statistics data shows that new housing work has been growing faster than maintenance and repair for the last 20 years. Logic suggests there must be a lot of maintenance requirements in the pipeline.

Based on this strong outlook for the RMI market, Peel Hunt is expecting adjusted EPS of 111p for 2022 up from 91p for 2021. However, a forward price earnings multiple of 19, though not overly expensive compared to peers, needs to be set against the possibility of further inflationary pressures and a consequent fall in household discretionary spending. Hold.

Last IC view: Hold, 1,438p, 2 March 2021

TRAVIS PERKINS (TPK)   
ORD PRICE:1,697pMARKET VALUE:£ 3.78bn
TOUCH:1,697-1,699p12-MONTH HIGH:1,772pLOW: 964p
DIVIDEND YIELD:0.7%PE RATIO:25
NET ASSET VALUE:944pNET DEBT:

29%

Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20201.67-94.5-34.50.0
20212.3014641.512.0
% change+38---
Ex-div:30 Sep   
Payment:05 Nov