Travis Perkins PLC (LON:TPK) shares ratcheted higher on Tuesday after Bank of America Merrill Lynch gave the builders merchant a double upgrade to ‘buy’ from ‘underperform’.
Merrill judged that the market backdrop is stabilising for the Wickes owner, with plans to sell off the Plumbing & Heating unit likely to drive a reappraisal by investors.
READ: Travis Perkins CEO John Carter to step down after five years at the wheel
Analysts at the US investment bank hoisted their target price to 1,700p from 1,000p, noting that while the shares are trading close to their historic average “we believe the stock deserves a premium”.
Even though the UK economic outlook remains hazy, the analysts are confident that a worst-case Brexit scenario will not materialise and see signs of stabilisation in residential housing transactions and consumer confidence in recent months, as well as the low interest rates, as indicating a “more benign outlook for merchanting demand”.
Travis Perkins, which is due to put out its first-quarter trading update on 8 May, will be more focused on its merchanting business once it sells off the P&H business, a move that management said they were exploring in December. There have also been hints about a possible disposal of Wickes.
Merrill’s analysts said they believe these moves, driven by incoming chief executive Nick Roberts, “could be transformational” and lead to higher returns on capital and a re-rating for the shares.
Shares in Travis were up 2.5% to 1,462.4p by mid afternoon.