Sunday share tips: Majestic Wine, Travis Perkins

13th Jan 2013 20:05

Builders' merchant Travis Perkins has used the recession to acquire rival operators and increase market share to become the country's largest supplier of building materials, with 2,000 stores and 16 brands. Thus, while the shares have started the year well they still have real long-term potential and should gain ground as the economy begins slowly to recover and consumers become more optimistic. To be had in account, the biggest driver of construction activity is the scale of property transactions. These have already begun to increase. Recovery is expected to be gradual, but it should deliver material benefits to Travis Perkins, particularly in the second half of the year, when people's incomes are forecast to begin rising again. For one, once the property market becomes more active, renovation work should increase quite sharply. In a survey of 1,000 homeowners carried out in the autumn by stockbroker Liberum Capital, more than 650 people said their homes needed redecoration or repair, so they will probably get cracking pretty quickly once confidence improves. As well, the company´s ambitious Chief Executive Officer hopes to take the group to 3,000 stores and increase its burgeoning online business, where it has been upgrading what it offers on the internet to ensure it keeps pace with customer demand. Furthermore, the company has established a small foothold on the Continent. The dividend is also forecast to show good progress, increasing from 20p in 2011 to 24p for 2012 and 29p for 2013. Lastly, the Financial Mail on Sunday´s Midas column highlights the focused nature of the firm´s CEO and its ability to leverage its size so as to secure the best terms from suppliers. Buy, Midas says.On January 8th, the Chief Executive of Majestic Wine, Steve Lewis, said UK sales over the festive season grew just 1.1% year on year, excluding the impact of new space. This was disappointing, suggesting that the economic downturn has affected even Majestic shoppers, who are traditionally a more resilient bunch than the average consumer. The picture may be brighter over the longer term, however. The group has just under 200 stores but intends to increase that to 330 over the next few years. As well, it has only 4% of the off-licence market, meaning there should be plenty of room to grow. Furthermore, traditionally, Majestic sold wine only in cases of 12, but this was reduced to six in 2009. Last year, the company changed the limit online as well, a move that should spur internet sales. In the first six months of 2012, online sales grew 14% and further strong growth is likely. Brokers expect profits of £23.6m for the year to March, a marginal increase over 2012. But they forecast a 9% increase in profits to £25.9?m in 2014, and a 10% rise to £28.5m in 2015. The dividend is also forecast to increase steadily over the next two years, from 15.6p in 2012 to 20p in 2015. What´s Midas´s verdict? "Majestic shares were hit hard last week and investors suffered. This is not a time to dump the stock, however, as the price should bounce back over the next few months. Hold," say Midas.Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB