Thursday tips round-up: Travis Perkins, Centaur Media

21st Feb 2013 07:24

There wasn't a lot that could have gone wrong for a company like Travis Perkins that didn't last year. Aside from economic uncertainty and weak consumer confidence limiting purchases of kitchens and bathrooms at its Wickes branches, the weather was awful and inflation, generally good news for such retailers, subdued. This year the construction market is expected to grow by one or two percentage points. There may also be some upside if the weather is not quite as bad. The biggest boost would be a rise in the level of transactions in the housing market. Some such rise has indeed been manifest for the past three months. This will, however, take six months or so to feed through into purchases of basic building materials and new kitchens and bathrooms. An increase in public infrastructure would also help, but again this will take a while to feed through. The shares have performed well this year, anticipating that pick-up in demand, though they lost 37p to £12.71 yesterday on profit taking. On just short of 13 times' earnings, they look a good way of investing in any housing recovery, but that is taking a long-term view. Hold, says The Times's Tempus. Centaur Media seems the perfect example of how a rising market lifts all boats regardless. The shares have doubled since July, but the halfway figures, though in no way a disappointment, suggest no particular reason for optimism yet, and a couple of negative brokers' notes saw the shares subside 5½p to 53p again. The business publishing division is still suffering, but digital is now 39% of revenues and margins are improving to an extent that earlier targets of 20% look achievable.Part of the problem is that the financial results are heavily skewed towards the fourth quarter, April to June, when subscriptions are up for renewal. The company had hoped to return to underlying revenue growth this year, but a cautious statement with the interims implies this is not yet certain, and, given the low visibility, nor can it be. The shares sell on less than ten times' earnings, but there looks like no immediate reason why they should head back up again, Tempus writes. Questor last looked at Travis Perkins in July 2010 and warned that it was not comfortable with the lack of visibility around demand for its products, given that public sector projects were under growing pressure from spending cuts. In truth, the economy has not changed much since then. However, shares in Travis Perkins have. They were trading at just 754.5p in July 2010, but have risen by 70% in the intervening period. Nonetheless, this column remains reluctant to advise readers to pile in to Travis Perkins. The company is well managed, and this is now priced into the shares, which are trading on a current price-earnings ratio of 13.3, falling to 11.8 times next year, and a dividend yield of 2.2%. Questor feels that the uncertainty facing construction markets and consumer confidence means that the valuation of Travis Perkins is too punchy. There could well be more attractive opportunities to invest in the company later in the year. Avoid, Questor says. 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