Berenberg downgrades Travis Perkins to 'hold'

Berenberg said it believes it to be inevitable that rising economic headwinds will affect construction demand globally, although it still thinks repairs, maintenance, and improvements activity "should be relatively more resilient" as in prior downturns.

However, compared to rival Grafton, Berenberg believes consensus forecasts for Travis Perkins in 2022 were "more demanding" and also noted that margins were lower, there was limited M&A upside, and also reckons there was less scope for additional cash returns.

"After the completion of the share buyback programme from the P&H disposal proceeds, we forecast post-IFRS-16 leverage to be at 1.4x net debt/EBITDA. Given the group's target leverage range of 1.5-2.0x, we think there is scope for a maximum £300m buyback (12% of market cap)," said the German bank, which also lowered its target price on the stock from 1,800.0p to 1,380.0p.

"However, given macro risks, it is unlikely the group levers up to the top end of its target range. While another buyback would be regarded as a positive catalyst, we think there is more balance sheet optionality at Grafton, which has a net cash position and M&A upside on top, supporting our preferences there."

Reporting by Iain Gilbert at Sharecast.com