Berenberg raises target price on Travis Perkins

Analysts at Berenberg raised their target price on builders' merchant Travis Perkins from 1,800.0p to 2,020.0p on Wednesday following a division-by-division investigation.

Berenberg stated the upcoming demerger of Wickes and the sale of its plumbing and heating unit "should" result in a re-rating of the increasingly attractive core Travis Perkins business, which the analysts pointed out would now have lower leverage, higher margins, returns and growth.

As a result, the German bank thinks that the implied multiple of the stub undervalues the remaining business, which it reckons is now worth 14.6x.

Berenberg said that as Travis Perkins was the largest builders' merchant in the UK, and given the financial headroom the group has, it would expect the firm to "successfully traverse" the uncertainty over the coming months.

"Early signs have been encouraging, with DIY already delivering like-for-like growth year-on-year and with merchanting growth also improving," pointed out the analysts.

In the mid-term, Berenberg thinks the group's focus on trade and empowering local branch managers should help it to take share.

"We believe the current share price implies that the stub excluding Wickes and P&H is trading on 10.8x 2022 EV/EBITA pre-IFRS 16. In our view, this business is worth 14.6x EV/EBITA, implying a fair value of 1,720p, above the current share price for the whole group. Including Wickes, we believe the group is worth 2,020p," said Berenberg, which also reiterated its 'buy' rating on the stock.