Credit Suisse ugrades Travis Perkins on UK housebuilding policy

Credit Suisse upgraded its rating on Travis Perkins to 'outperform' from 'neutral' as the building products supplier was chosen as the top pick for the sector.

The Swiss bank said the broadly favourable trading outlook for the next two years ahead would lead to average sales sales and EPS growth of 7% and 14% respectively.

"Travis Perkins may not be the most 'exhilarating' investment thesis but the combination of cyclical tailwinds, structural self-help and internal growth from market share gain and branch expansion, within the framework of tight capital discipline and focus on shareholder value make for a compelling and resilient investment case," Credit Suisse said.

TPK has broad exposure across all types of construction end markets and so is seen as a proxy for total UK construction activity, where "decent" growth is expected in the medium-term, helped by the Government's desire to materially increase UK housebuilding output.

This policy, as expressed in the Prime Minister's Monday announcement of 13,000 new homes to be built on government land, will create a "clear winner" in increased building material volumes, analysts believe, while their view on the potential impact on the housebuilding subsection is unclear.

The company's own investment programme is partway completed, with the benefits expected to become increasingly apparent in the next year through organic sales growth, while free cash flow yields should bounce back once relative capex spend peaks.

As a result of all this, CS upgraded its target price to 2,255p from 1,838p.