Broker snap: Citi upgrades Travis Perkins on UK housing recovery

29th Aug 2013 10:50

Building materials group Travis Perkins was making gains on Thursday morning, rebounding after recent share-price weakness, helped by an upgrade by Citigroup from 'neutral' to 'buy'.The US bank said that after a 10% fall from its recent high - down by 2% over the last three months - the stock is now trading at 13.5 times 2014 earnings which looks "relatively attractive the balance sheet capacity and potential for earnings recovery given the positive trends expected in the UK".Citi said that the stock is a good way to play the improving performance of the UK housing market."It is a pure UK play and should benefit from rising housing transactions and positive momentum in UK GDP trends. While rising bond yields may weigh on sentiment in the near term we move the shares back to 'buy' on a more attractive valuation and its exposure to the positive UK market expected over the next 12 months.""It is one of the best managed companies under our coverage, will benefit from volume recovery and has a strong balance sheet, in our view."The bank said that Travis Perkins should enjoy good operational leverage as volumes continue to recovery. It looks well positioned to deliver earnings per share of over 150p "at some point" as volumes get back to more normal levels. This compared with the 108.9p per share earned in 2012, up 20.6% on the prior year.Citi left its target price for the shares at 1,745p.The stock was up 1.6% at 1,584p by 10:47 on Thursday.BC