JP Morgan has reiterated its ‘overweight’ recommendation on Travis Perkins (LSE:TPK), setting a price target of 670p, and describing the business as being in “the very early innings of a recovery”.
In a note on the half-year results, the American bank said Travis had guided for full-year earnings “broadly in line with current market expectations”, easing concerns about a potential downgrade after mixed updates from other United Kingdom companies.
JPM pointed to several factors behind renewed investor interest.
“Investors were fearing a downgrade with mixed read-across from UK companies heading into the print,” the note said, while the impact of “excessive discounting … did not have a material impact” on earnings.
The bank cited “strong Toolstation UK performance,” highlighting management’s assertion that its 8% margin target “undershoots the business potential,” with Toolstation reporting a 5.7% margin in the first half.
Market share, which had been under pressure, is now “showing signs of stabilisation,” JPM said.
The group is “starting to see the benefits of re-engaging its workforce (via incentives) and stopping its market share losses, discipline from capital allocation … and selected cost management.” Leverage was reduced by 0.4x to 2.3x, moving towards the target range of 1.5x–2.0x.
JPM noted that promotional activity is “more targeted and not broad-based,” with a cement promotion delivering 1,600 new customers.
It also reported that “July trends were slightly positive” and that Travis Perkins is entering the second half “with momentum and optimism.”
The incoming chief executive, Gavin Slark, is expected to take over in January, with some investors awaiting his strategic direction.
The shares were flat at 565.50p.