Barclays remains cautious on blue chip builders' merchant Travis Perkins PLC (LON:TPK) amid worries about the group’s abilities to pass on inflation cost rises to its customers.
In a note to clients, the bank’s analysts said they had raised their 2016 forecasts for the owner of the Wickes chain “following evidence from peers of a strong finish to the year”.
But they have reduced their 2018 EPS estimate for the firm by 4% - putting them 11% below consensus - as they said “we believe the market expectation of a sharp rebound in that year is unrealistic”.
The analysts said: “We are of the view the size of the moves, high fragmentation in the competitive landscape and weak end-user demand due to uncertainty related to Brexit as well as downward pressure on real disposable incomes, mean it will be difficult to pass on the (inflation) increases in full.”
They added: “These pressures will only really begin in the second quarter of this year and impact more significantly in the second half. It is unlikely to be a six month phenomenon, leading us to push our expectation of recovery to 2019.”
Barclays repeated an ‘underweight’ rating on Travis Perkins shares despite a relatively attractive valuation of 13x 2017 earnings.
The analysts said this cautious stance reflects the “risk to forecasts and the potential for an extended period of uncertainty”.
In early morning trade, Travis Perkins shares on the FTSE 100 index edged 4p lower to 1,466p.