Builders' merchant Travis Perkins (TPK) is one of the top performers in the FTSE 350 mid-cap index today, up 2.6% to £14.41 following its strong first quarter trading update.
Group sales for the three months to the end of March were up 7.3% on last year on a like for like basis driven by 10.6% growth in the Merchanting business and a 25% jump in sales at Toolstation.
Last year’s revenues were depressed by adverse weather including ‘the Beast from the East’ so underlying growth is lower than the headlines numbers but the improvements at Merchanting, Toolstation and Wickes are still clear to see.
BETTER EXECUTION IN THE CORE BUSINESS
Within Merchanting the Travis Perkins stores grew revenues by 8% on a like-for-like basis driven by increased sales to larger regional and national customers. The strategy to allow branch managers more autonomy, with greater access to information, simpler pricing systems and more customer focused support from the central functions, has been key to this growth.
Toolstation has benefitted from a raft of new store openings and a new website with a much broader range of products, while Wickes also performed strongly thanks to core DIY sales and its Kitchen & Bathroom (K&B) lines.
K&B improved thanks to a strong order book carried over from 2018, as some competitors decided to quit the design & install service for end-consumers, and thanks to better execution of its existing orders.
PLUMBING & HEATING FOR THE CHOP
As expected, the Plumbing & Heating business experienced a slowdown in like-for-like and total sales due to milder weather than the previous year. Branch network and specialist online channels showed good sales growth but this was offset by a decline in the wholesale business.
The separation of the Plumbing & Heating business from the rest of the group is on track and should be completed within the second quarter. That will allow it to be sold off to a trade or private equity buyer, complete with its own IT system and back office functions, releasing capital and simplifying the group structure.
Following today’s results Peel Hunt has raised its price target to £14.50 and kept its ‘hold’ rating while Shore Capital has downgraded the stock to ‘sell’ which has taken some of the steam out of the share price.
