Travis Perkins (LON:TPK) has been upgraded to ‘equal weight’ from ‘underweight’ by Barclays who said its valuation now reflects the uncertainties the DIY-stores owner is facing.
Barclays said that although uncertainties remain around economic activity in the UK and the Wickes brand owner’s own positioning and strategy, it believes its valuation now reflects the risks. Travis Perkins shares have shed a third of their value this year but could attract strong buying interest next year if its upcoming strategy update goes well, said the bank.
READ: Travis Perkins sales rise despite tough UK DIY market
“The key factor in the coming months – other than how Brexit goes – is the strategy update. Paradoxically, the positive surprise of third quarter trading being better than feared may make it more likely the revised strategy is less radical, which could underwhelm the market,” Barclays analysts said in a note to clients.
Travis Perkins last week reported underlying sales growth of 4.1% in the three months to the end of September, boosted by a strong showing from its merchanting, contracts and plumbing & heating divisions.
Barclays said it had increased its EBITA forecast for the group, which was already at the top end of the range, by 1% to £370mln. It also boosted its like-for-like sales growth forecast from 3.4% to 4.3%, with a fourth-quarter growth of 4.5%.
In terms of the upcoming strategy update regarding the structural positioning of the business and management's strategy, Barclays sees the group’s main TP brand as being the biggest conundrum.
“It's not in turmoil like the plumbing & heating business was but, in our view, its positioning is imperfect for the changes in the broader market,” it said.
Shares in the company were 3% up at 1,064.0p in morning trade.