That’s according to analysts at Canadian investment bank RBC, who have upgraded the FTSE 250 builders’ merchant to ‘outperform’ from ‘sector perform’. They have also hiked their price target to 1,550p from 1,180p.
Travis Perkins said in December that it was exploring the sale of those two businesses in order to simplify its structure, reduce its costs and focus on more profitable divisions, and RBC believes the disposals would improve the mix of the business.
“As well as focusing the business on the Trade customer, potential disposals of P&H and Wickes should improve the longer-term organic growth, margin and ROIC of the business and hence the potential PE.
“Toolstation will become a much larger proportion of the overall business (c.5% profits today to c.15% in 2023) – [and] this could be even higher if TPK buys out its European partner.”
Debts slashed, too
Analysts reckon the plumbing and heating division will be offloaded at the end of this year and Wickes at the end of 2020.
“If we look out five years, then we see the current level of dividend as sustainable, even with dilution on disposals, and we see the potential for cash returns of c.£1.35bn. Added together, we believe the company can return more than half its current market cap on a five-year view.
“The sale of P&H and Wickes would, we estimate, reduce the leased debt of the business by c.£1.1bn to £400m – so also de-risks the business from a financial perspective.”
Travis Perkins shares rose 1.4% to 1,225p on Friday morning.