Travis Perkins fundamentals: all you really need to know
Travis Perkins (TPK) is one of the largest UK suppliers of building materials and tools (what's known as a builders merchant). It sells construction materials, plumbing and heating systems, kitchens, showers, power tools, timber, etc.
Travis Perkins has over 650 branches across the UK. Its customers include professional builders, construction companies, and individuals who like to do their home improvement works themselves. The company's brands include Travis Perkins, Keyline, Toolstation, Tile Giant, etc.
2019 was a good year for the company: after a loss of £49 million in 2018, it managed to make a £122.8 million net profit. This result was particularly impressive since the conditions in the home improvement industry were still tough last year.
The stock fared very well, too, and TPK investors were up 40 per cent on LSE by the year's end. The earnings per share amounted to £48.9. The chart shows the steady rise from £10.6 go £16.6 over the course of 2019:
One of the factors that boosted the share price was the plan to demerge the company's retail branch, Wickes, which sells bathrooms, kitchens, tiles and the like. This would help Travis Perkins streamline its operations and focus on B2B sales.
Early 2020: a good start before the storm
At the start of the year, all Travis Perkins share price news was of the optimistic kind. The Brexit crisis seemed about to be resolved, and the construction industry breathed a sigh of relief.
In January, the company sold its wholesale division Primaflow for £46 million in a bid to reduce debt and improve the group structure.
Moreover, Wickes announced an 8.7 per cent jump in YTD sales on 29 January. This bode well for the demerger scheduled for July 2020 and gave the TPK price a new boost.
By late February, the coronavirus outbreak in Asia started taking its toll on the European markets. However, there was still a widespread hope that the West would be spared.
In early March, IHS Markit analysts reported that the number of new building orders in the UK surged to a four-year peak. On 3 March, Travis Perkins posted its impressive full-year results for 2019. The TPK share price increased by 3 per cent from £14.3 to £14.74, though the general trend was still down:
However, just a couple of weeks later the coronavirus struck the UK, and Travel Perkins was suddenly flung into complete uncertainty – together with the whole UK building industry.
The following chart is a dramatic illustration of the descent into chaos. Note how the price plunged from £17 on 20 February to less than £6.5 by 18 March. That's a 62 per cent decrease:
March: Travis Perkins share price news turn gloomier
A massive stock market rally took place on 13 March as central banks around the world pledged massive stimulus packages. At the same time, Travis Perkins announced that its sales for the period from January to March 2020 have been in accordance with expectations and 2.4 per cent up from 2019. The combined effect of the strong sales data and the general market upsurge helped the TPK share price grow by 1.2 per cent from £10.784 to £10.914
However, this wasn't the beginning of an uptrend. 18 and 19 March were the worst days by far, as the TPK share price precipitated 33 per cent from £9.312 to £6.252 on the back of coronavirus fears.
On 20 March, Travis Perkins announced that it was cancelling its full-year dividend payment of 33p per share. The move should save the company circa £80 million.
Moreover, the company decided to halt the Wickes demerger, without setting a new date.
That day, the price managed to gain 24.4 per cent to reach £7.783.
In the following days, TPK kept growing to close at £9.849 on 26 March. It recovered all its losses since mid March. But unfortunately, a new slump followed, and by 3 April TPK was trading at £7.326, having lost over 25 per cent in just one week.
As of the time of writing, all Travis Perkins branches are closed, and the company isn't accepting online orders. However, it is still delivering tools and materials for emergency repairs on sites like hospitals, nursing homes and schools.
Is the turning point near?
What’s the best course of action regarding Travis Perkis shares – buy or sell? The UK housing prices are very low at the moment, and there's hardly any home improvement activity going on. However, according to an expert from the Argonaut Absolute Return fund, we can expect a fast, V-shaped recovery of the housebuilding industry as soon as the crisis is over. In that case, Travis Perkins share price will grow – and fast.
When will this happen? The epidemic could peak soon in the UK, but that doesn't mean a reopening of the country. The lockdown can easily last into May, and some of the restrictions could stay in place for six months. In that case, we can hope to see a new uptrend in the building market by September or October.
Until the Covid-19 crisis ends, TPK is certainly a “hold”. There’s no sense selling any construction or home improvement stocks right now, since these industries will be among the first to recover. As for those investors who don't have TPK in their portfolio yet, now is a good moment to buy.