Builders’ merchant Travis Perkins (TPK) is top of the FTSE 350 today with shares trading up 14% to £14.49 after forecast-beating full year results.
Sales were up 4.8% to £6.74bn last year while pre-tax profits were up 1.2% to £347m compared with estimates of a 7% drop.
Part of the reason for the better figures is a sharp pick-up in like-for-like sales in the final quarter. Growth in the last quarter was 6.9% compared with 4.2% the previous quarter, driven by better sales to retail customers rather than sales to builders.
A TALE OF TWO HALVES
The first half of last year was disappointing, particularly for the Wickes retail business.
Price competition from Homebase led to lower than expected margins while sales of kitchens and bathrooms were also below target.
Compounding this, Wickes failed to cash in on last year’s ‘barbecue summer’ as it doesn’t stock as many outdoor lines as the competition.
However better promotional activity in specific DIY categories and the decision by B&Q, owned by Kingfisher (KGF), to exit the kitchen and bathroom business helped drive a recovery in sales in the second half.
This ‘tale of two halves’ is demonstrated perfectly by retail operating profits, which fell 39% in the first half but rebounded by 15% in the second half.
This fed through to group operating profits which were down 11.5% in the first half and up 10.7% in the second half, ending the year down just 1.3%.
A FITTER BUSINESS
Travis has been taking concerted ‘self-help’ action throughout the year to streamline its business, simplify the decision-making process and ultimately take out costs.
The Plumbing & Heating division is winning market share and delivering ‘significant sales growth’ while work goes on to line up a buyer for it.
The Merchanting business, which is core to the firm and has better margins than retail, is being streamlined above branch level to save costs and to allow managers on the ground more independence.
The new group structure is expected to generate savings of £5m this year and between £20m and £30m next year which would mean a material improvement in operating margins.
THE LONG VIEW
While there is inevitable uncertainty over the short-term outlook, Travis is confident that the big drivers of long-term demand are still favourable.
There is an ongoing need for more homes in the UK, there is government support for house-buyers, and mortgage interest rates are unlikely to rise sharply any time soon given the level of competition among lenders.
There has also been significant under-investment in the repair, maintenance and improvement of existing homes and infrastructure which will drive both retail and trade demand.
