Travis Perkins passes on price rises but volumes slow

The double-digit growth in Travis Perkins’ (TPK) top line doesn’t tell the full story of what was a tough six months for the company.

The increase is largely the result of higher selling prices, up 14.4 per cent. Volumes slipped by 4.1 per cent.

This is understandable, given industry forecasts suggesting a demand decline as the pandemic-fuelled home building boom unwound, with higher inflation and a more uncertain economic environment making the prospect of taking on projects less appealing.

Management put on a brave face, saying the flat adjusted earnings represented “a good performance” given the heightened levels of prior-year activity, but some of its numbers made for uncomfortable reading. 

Net debt increased by around 50 per cent to £902mn, with a cash outflow of £415mn during the period used to fund £172mn of share buybacks and the early repayment of a £120mn bond. Working capital also rose by £115mn as it had to pay more for stock.

One concern is the performance of its Toolstation business. Its like-for-like revenue declined by 10.6 per cent, triggering an adjusted operating loss of £8mn, compared with a £10mn profit last year. Travis Perkins attributed this to a "normalisation" of trading, with fewer DIY enthusiasts using its depots, which are once again mainly the preserve of trade customers. 

Chief executive Nick Roberts said he was "as confident as ever in the long-term growth potential" of Toolstation and would continue to invest in its UK operations. It has added a further 19 branches during the half year, bringing the total to 549.

It has also continued to pump money into Toolstation's expansion into Europe, increasing branch numbers by 20 to 143. That business lost £15mn in the first half – a figure that is expected to rise to £30mn for the full year as it brings a distribution centre online in the Netherlands.

This is £10mn more than previously guided, UBS analysts said in a note. They expected “modest downgrades" to the company’s shares following these numbers. They weren’t wrong. 

Travis Perkins' shares fell by 8 per cent, bringing their year-to-date decline to 42 per cent. They now trade at just over eight times consensus forecast earnings of 114p a share, well below their five-year average of almost 13 times. Travis Perkins is a well-regarded operator but elevated costs and weak demand make the home improvements space a tough place to be right now. Sell.

Last IC View: Hold, 1,437p, 1 Mar 2022