Travis Perkins PLC (LON:TPK) has been upgraded by JPMorgan after its 'simplification' process that saw it spin off its Wickes Group chain.
The investment bank upgraded its rating on the shares to 'overweight' with the share price having risen 31% so far this year but only recouped the poor performance of last year when underperforming the wider European merchants/distribution/retail names.
"The group has simplified its structure, leading to [a] significantly improved balance sheet and returns profile which, in our view, is not reflected in the valuation yet," the JPMorgan analysts said, with the company's price-to-book ratio at 1.4 compared to a long-term average of 1.5.
"We expect capital allocation to be a key area of focus", they added, ahead of the capital markets day later this summer, estimating surplus cash to reach around £720mln by 2022, or 20% of the group's market cap.
Having reset their forecasts following the simplification, the analysts have revised their June 2023 price target to 2,000p, "as we see considerable scope for re-rating" with a bull-case scenario suggesting a sum-of-the-parts valuation of 2,300p, that would imply potential 38% upside.