It might have been possible to dimiss brickmaker Michelmersh's (MBH) collywobbles last week as market jitters rather than emerging evidence of housing market slowdown if an update from Travis Perkins (TPK) had not pointed to a fall-off in housing transactions towards the end of 2014 and early part of 2015.

The result has been falls across the builder's merchanting space with Travis down 6.1% at £18.44 while peers like SIG (SHI) have tumbled 21.8% to 139.6p. Elsewhere in the segment casualties include Grafton Group (GFTU) shedding 3.8% to 664p and Howden Joinery (HWDN) which is 3.9% lower at 449.2p.


A third quarter trading update from the Wickes owner infomed investors that full-year EBITA was now expected to be at the lower end of market expectations as a consequence of a 'slowdown in secondary housing transactions towards the end of 2014 and early part of 2015'. The knock-on effect of this weaker demand has been to put the brakes on recovery in the Renovation Maintenance Improvement (RMI) market.

The pronounced decline in third quarter revenue growth meant that even though group sales grew by 5.5% during the third quarter, this turned out to be a 2.6% increase on a like-for-like basis.

Following a strong performance at the end of the second quarter, like-for-like volumes across all of the businesses were noticeably weaker during July and August, with a gradual improvement being noted towards the end of September. This trend, Travis insists, has continued with further improvement during the first half of October. Looking forward, management notes that fourth quarter trading has started more encouragingly, with all businesses impacted by the weaker summer demand showing a pick-up in growth. Additionally, the lead indicators monitored by the group suggest a continued recovery in the fourth quarter with RMI markets growing further through the first half of 2016.

The update has prompted Davy Research to reduce its full-year trading profit forecast by around 5%. Davy analyst Flor O'Donoghue notes that they 'have struggled to get excited about Travis Perkins for some time and this will remain the case as long as there is earnings risk and the stock continues to trade on a reasonably rich valuation.'

Issue Date: 22 Oct 2015