FTSE 250 builders’ merchant Travis Perkins (TPK) issued a disappointing Q1 trading update, missing market expectations. Shares in the Northampton-based group dropped 5% to a new 12-month low of 518p.
Volumes remain weak
For the three months to March, the group posted a 3.1% drop in revenue with organic revenue down 1.7%. The balance of the decline was due to changes in the number of stores over the last 12 months.
Breaking down the like-for-like figure, volumes were down 2.8% while the firm managed to raise prices by 1.1%. Toolstation UK, which accounts for around 15% of sales, was the best performing division with LFLs up 2.6%.
Toolstation Benelux, which accounts for a fraction of group sales, was the worst division with LFLs down 7.1%. Prices were up 1.7%, but volumes were down 8.8% in contrast with Toolstation UK volumes up 1.5%.
Merchanting turns negative
However, the merchanting business, which makes up 85% of sales and a similar proportion of earnings, is a bigger concern. LFL sales fell 2.3% during the quarter due to a 3.3% drop in volumes, more than offsetting a 1% price rise.
Merchanting sales were flat last year, but it was a tale of two halves with LFLs turning from negative in H1 to positive in H2. Moreover, Q4 LFL sales were up 2.1% in Q4 and there was every hope they would remain positive.
The firm attributed part of the fall to the sale of Staircraft, but it also admitted construction activity was ‘subdued’. Going forward the focus is on managing costs and identifying more operational synergies to maintain cash in the business.
Given the moribund state of the housing and RMI markets, these results aren’t that much of a surprise. That said, the drop in LFLs in merchanting is notable and will likely send analysts back to their spreadsheets.
If Travis Perkins is suffering, smaller independents will be suffering more which in the long run presents an opportunity. How long investors are prepared to wait, however, is another matter.
Generally speaking, new lows beget more lows, and we don’t like trying to catch ‘falling knives’. There are plenty of other more interesting stocks out there, many on cheap ratings, so we would look elsewhere.
Read the press release here:
https://www.travisperkinsplc.co.uk/investors
