Barclays downgrades Travis Perkins, slashes price target

Barclays downgraded Travis Perkins to ‘underweight’ from ‘equalweight’ and slashed the price target to 1,400p from 1,950p saying the UK’s vote to leave the European Union will have a large impact on the business than the market expects, which will hit the valuation.

“The combination of earnings risk, likely valuation downside and the potential for a lengthy period of uncertainty in the UK leads us to downgrade to an ‘underweight’ rating.”

The bank said it now assumes a slowdown in the UK leads to around 1% like-for-like sales growth in the second half of this year, down from around 3% in in the first half and flat LFLs in 2017, with around 3% EBITA growth in 2016 and a 5% drop in 2017.

“This is considerably lighter than the 30% decline in EBITA seen from 2007-09 but nonetheless puts us 5% below Reuters consensus for 2017 and 7% below for 2018 (adjusted for only those who have updated numbers post the EU referendum result).

“If we take Travis’s average historical 12x price-to-earnings multiple we estimate the market is pricing in LFL growth of around 3% for 2017.”

Still, Barclays insisted that it likes the company’s medium-term strategy and said the ‘underweight’ rating was not a result of it doubting strategy.

“We are of the view Travis Perkins’ five-year plan is likely to deliver market share gains without compromising returns.”

At 0855 BST, Travis Perkins shares were down 2.6% to 1,519p.