by John Woolfitt, Atlantic Capital Markets
Fundamentals & Statement Summary
UK based building, construction & home improvement supply giant Travis Perkins (TPK.L) today announced half year results for the 6 months to June 30th, stating it had ‘successfully adapted to unprecedented markets.” Revenues for the period fell 19.3% to £2.78bn, leading to a loss per share of (45.7)p (4.2p HY19). Adjusted operating profit of £42m reflected the shortfall from lower volumes, partially offset by actions taken by the group to reduce and control operating costs.
Travis stated that a restructuring programme was underway to reduce overheads in line with the anticipated volume outlook, which will deliver cost savings of £120m on an annualised basis. In line with this, a strong focus on cash and working capital management resulted in a reduction of covenant net debt of £322m from 31 December 2019 to £22m.
The group said that significant improvements in digital platforms across all segments drove customer fulfilment, process simplification and improvements in branch network, underpinning market outperformance and supporting future growth. The demerger of Wickes is now paused until markets become more stable and predictable.
Travis said the long term fundamentals of the Group’s end markets remain robust, with ongoing demand for new housing and underinvestment in the repair, maintenance and improvement of the existing UK housing stock, although significant uncertainty remains in the UK economy in the near term. Technical guidance provided for 2020 included an effective tax rate of 22%, finance charges similar to 2019, capital expenditure in 2020 of around £70m to £80m and property profits of around £10m.
CEO Nick Roberts said Travis had made..“significant strategic and operational progress against the four strategic priorities we outlined at our full year results in March 2020.
“Although considerable uncertainty around the impact of the COVID-19 pandemic remains, the actions we have taken to adapt and innovate in our businesses mean that the Group is well placed to continue to service our customers, support our colleagues, outperform our markets and generate value for our shareholders.”
Chart and Technicals
Source: FactSet and Hargreaves Lansdown
Travis shares have delivered a strong recovery since falling off the ‘COVID cliff’ in early March, dipping briefly to 573p on March 18th before recovering the 50-day MA envelope at the start of May. The stock performed well, trading above the MA envelope through to the end of July, when it briefly dipped below the level. Since that time support has come from the 50-day line, and with the gradual convergence of the 50 day average with the benchmark 200-day average, there is the prospect that the stock could develop a bullish golden cross configuration (the golden cross appears on a chart when a stock’s short-term moving average crosses above its long-term moving average) in the coming weeks. Provided this signal is confirmed, in line with the rising MA envelope and clear forward fundamental guidance provided by the company, our initial target is 1400p, followed by a return to the late February 50-day MA high at 1600p.
Summary and Atlantic View
Travis shares have delivered an impressive and solid recovery since March 18th. Despite the inevitable fall in revenues, delivering an adjusted operating profit during one of the most challenging trading periods faced by any company in history…ever, is a major achievement, and a solid endorsement of management strategy and the prompt response by the board to restructure and cut costs. As the UK starts to return to work, despite the attendant COVID uncertainties, Travis is selling into a robust market, supported by an ever-increasing demand for new homes and burgeoning maintenance market. Supported by a reasonably bullish charting configuration, and clear forward guidance from the company, Atlantic are confident that Travis shares will continue the current recovery and push on to an initial target of 1400p by mid November. Buy.
To take advantage of this trading idea, speak to a member of our dealing team on 01872 229000 or visit the Atlantic Capital Markets website here