Shares in builders’ merchant Travis Perkins (TPK) fell 3% to £15.36 in early trading despite a strong third quarter trading update, an increase in full year profit forecasts and the continuing £100 million share buyback.
According to the firm, the positive momentum of the second quarter continued into the three months to September with like for like sales growing 13.1% on last year.
STRUCTURAL IMPROVEMENT
On a two-year basis, sales were up 13.3%, demonstrating that growth is structural rather than cyclical thanks to the continued strength of the new build and repair, maintenance and improvement markets.
The core merchanting business delivered 15.3% like for like sales growth (12% on a two-year basis) with the general merchant business showing an ‘excellent’ performance and the specialist business seeing a recovery in end market demand.
Toolstation revenue growth slowed to 1.4% after an ‘exceptional’ third quarter last year but still showed a 25% increase on the same period of 2019. UK two-year like for likes were up 45% while the European business continues to gain traction with new trade customers.
Cost inflation increased to around 11% during the quarter against 7% in the previous quarter, but the firm is managing the increase and thanks to its strong supplier relationships is maintaining product availability to customers.
Chief executive Nick Roberts was justifiably upbeat: ‘The Group has delivered a strong performance in the third quarter and is navigating well-documented supply chain and cost inflation challenges very capably. End market demand remains robust and we are confident that we are in a strong position to deliver future growth.’
RAISED GUIDANCE
Given the strength of demand shown during the quarter, and despite rising costs, the firm upped its full year operating profit guidance to at least £340 million, including £40 million of property gains, compared with the consensus of £316 million.
Meanwhile the £100 million buyback rolls on and shareholders are in line for a 35p per share special dividend before the year-end. Given the recent weakness in the shares, that puts the stock on a total yield of 4% assuming the full year distribution of 15.5p is reinstated, although with operating profits seen higher than forecast that figure may be conservative.
