USB slashes target price for Travis Perkins

23rd Aug 2018 14:11

(Sharecast News) - Analysts at UBS slashed their target price for shares of Travis Perkins, pointing to the company's more mixed track record over the past years on market outperformance and cost discipline.Among the main negatives in its equity story, they highlighted the lack of market share growth at its General Merchanting arm - which accounted for 50% of group EBITA - and the dramatic drop in profits at its home improvement arm, Wickes, starting in the back half of 2017.The Plumbing and Heating business had also gone through a trying time between 2015 and 2017, they said.UBS's Gregor Kuglitsch and Miguel Borrega conceded the shares had de-rated as a result and that at just 47% their EV/sales, they could turn out to be a contrarian value opportunity.But due to the uncertainties around the company's macro and strategic direction, they decided to retain their 'neutral' recommendation on the stock.They also lowered their target price from 1,515p to 1,240p, pointing out how weak consumer spending, together with pricing pressure, had led to a drop in profits in Wickes.Operating earnings on an EBITDA basis at Wickes were seen falling from £81.0m in 2016 to £37.0m in 2018.The Swiss broker also expressed doubts on the long-term fit of P&H and Wickes with the rest of the business, due to their volatile earnings structural attractiveness."We think the focus should be on growing General Merchanting, Contracts and Toolstation. Particularly finding an answer to the growth of fixed price merchants (of which Toolstation is one) and independents will be key, in our view."A strategy review was ongoing with its results due in December 2018.