RBC hikes Travis Perkins targets, paints upbeat outlook

RBC Capital Markets has hiked its target price for Travis Perkins by more than a fifth, saying the builders merchant is well positioned ahead of the arrival of a new chief executive and chair-designate.

Ahead of the company's third-quarter trading update on 17 October, RBC has upped its target for the shares from 950p to 1,150p and reiterated an 'outperform' rating.

Incoming CEO Pete Redfern will be joining the company as of next week, while chair-designate Geoff Drabble will arrive in October.

"Whilst the new chairman and CEO have not arrived yet – we expect the focus to remain on transforming the operating model to deliver structural efficiencies over the medium term," RBC said in a detailed research report on Friday.

The broker highlighted Travis Perkins' merchanting brand network, which it said has an "advantaged position" compared with competitors, while there are several other opportunities for the business to improve.

"There is a raft of self-help potential in terms of removal of Toolstation (TS) Europe losses, store maturity in TS UK, cost savings, improvements to procurement, supply chains, working capital and more discipline at the branch level," RBC said.

Meanwhile, the macro outlook is also improving. Further expected cuts in interest rates will likely to be positive for the housing market, while trends in inflation, house prices, disposal income and confidence should mean that the market is getting close to trough, the broker added.

Travis Perkins shares were up 2.4% at 895p by 1153 BST.