The UK’s largest supplier of building materials, Travis Perkins (TPK) downgraded full year adjusted operating profit guidance by 12% on Friday flagging the negative impact of higher interest rates and weaker consumer confidence on its end-market.
The shares made a new six-month low after falling 5% to 823p, taking them 20% below the highs in February when there was growing optimism the housing market was stabilising.
Analyst earnings forecasts tell a different story. Consensus expected profit for 2023 and 2024 have been revised down by around a quarter over the last year, according to Refinitiv data.
WHY IS THE COMPANY LOWERING EXPECTATIONS?
The company said volumes in both new build housing and private repair, maintenance and improvement markets continue to be impacted by higher interest rates and ‘persistent higher than anticipated consumer price inflation.’
Other end-markets including commercial, industrial, infrastructure and public sector housing are said to be performing with more resilience while Toolstation continues to perform ‘in line’ with expectations across the UK and Europe.
The group continues to focus on delivering operating efficiencies and making targeted investments to ensure it benefits from a recovery.
But assuming the softer market continues for the rest of the financial year the company now expects 2023 adjusted operating profit to be around £240 million compared with £272 million in April.
EXPERT VIEW
Investment director at AJ Bell Russ Mould commented: ‘During the pandemic, countless households splashed the cash to do up their property, given they were spending so much time at home and wanted it to look nice.
‘This caused a backlog of work for builders, hence why the boom lasted way beyond the easing of the pandemic.
‘Sadly, we’ve got to the point where interest rates have gone up so much, so fast, that many homeowners can no longer afford home improvement projects.
‘For many, mortgage payments have become punishing if they’ve rolled off a fixed rate deal in the past six months or so, and others are watching their pennies closely for fear that rates aren’t going to fall back any time soon.’
HOW DID OTHER STOCKS REACT?
Sector peer Grafton (GFTU) fell 3.3% following Travis Perkins' warning, while DIY retailer Wickes (WIX) dropped 4.4%.
Housebuilders Redrow (RDW) and Bellway (BWY) retreated 1.9% and 0.5% respectively while paving stones specialist Marshalls (MSLH) fell 3.2%.
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author if the article (Martin Gamble) and the editor of the article (Daniel Coatsworth) own shares in AJ Bell.
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