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UBS offers mixed picture on building material firms as Ferguson upped to ‘buy’ while Travis Perkins knocked to ‘sell’

The Swiss bank said the market was "over-optimistic" about a recovery in the Uk market, while Travis Perkin's was unlikely to get the same benefits from competitor disruption in 2020 as it had done in the prior year

Ferguson PLC - UBS offers mixed picture on building material firms as Ferguson upped to ‘buy’ while Travis Perkins knocked to ‘sell’

Analysts at UBS have offered a divergent picture for some London-listed building material firms, with Ferguson PLC (LON:FERG) upgraded to ‘buy’ from ‘neutral’ while Travis Perkins PLC (LON:TPK) has been downgraded to ‘sell’ from ‘neutral’.

For Travis, UBS said it had downgraded the stock following a recent re-rating of the share price, which has risen around 25% in the last six months, adding that they thought the market was getting “over-optimistic” about a recovery in the UK market.

The bank added that Travis Perkins had “benefitted from competitor disruption” in 2019, notably insulation maker SIG PLC (LON:SHI) and B&Q owner Kingfisher plc (LON:KGF), a situation they did not expect to recur this year, which in turn may “deflate overall growth”.

UBS did, however, increase its target price for the company to 1,400p from 1,380p in line with revised forecasts for the group.

For plumbing and heating group Ferguson, the bank’s analysts hiked their target price to 8,075p from 6,600p alongside their rating upgrade, saying a combination of margin growth and multiples meant there was still some upside to the shares.

“The biggest risk to our upgrade is that the cycle turns negative and revenues start coming under pressure. Lead indicators are somewhat mixed but there is improvement in the new residential housing market, somewhat weaker outlook for RMI spending and uncertainties around non-residential spending”, they said.

The bank added that there was a “high probability” that the firm will decide to re-list in the US when the company make a decision on its listing structure later this year, adding that the most likely outcome will be a dual listing until shareholders vote on whether to move the primary listing to the US.

The assessments sent shares in Travis Perkins down 1.1% to 1,622p in late-morning trading on Wednesday, while Ferguson was 0.5% higher at 7,138p.

Quick facts: Ferguson PLC

Price: 7938 GBX

LSE:FERG
Market: LSE
Market Cap: £17.85 billion
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