Travis Perkins PLC (LON:TPK) has been upgraded to ‘buy’ from ‘hold’ by analysts at Jefferies, who said the builder’s merchant is “clearly exposed” to what the broker said was sustainable growth in the UK’s construction sector.
In a note on Friday, Jefferies also raised its target price on the FTSE 250 firm to 1,439p from 1,206p, saying that the UK residential repair, maintenance and improvement (RMI) market has seen “strong pick-up through [coronavirus]” which they said was sustainable in the medium term.
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“As people spend more time at home post [coronavirus], it may also drive greater desire to invest in homes. Travis Perkins, deriving c.70% of sales from RMI, is one of the best-placed stocks to benefit from this”, Jefferies said.
Analysts also said that the potential of the company’s Toolstation division was “underappreciated” by the market, saying the business has been the best performing arm of Travis Perkins during the pandemic.
Our proprietary mapping suggests there could be sufficient catchments to more than double the current number of Toolstation branches in the UK. Modelling the longer-term potential from this network expansion and its maturity suggests Toolstation could account for [one third] of Travis Perkins' profit in ten years from c.5-7% currently”, they added.
Jefferies also said that valuing the Toolstation division alone could “double the upside” implied by their target price, which they said showed that the “potential of the group’s smallest division remains undervalued”.
Shares in Travis Perkins were 2.2% higher at 1,135.5p in mid-morning trading.