FTSE 250 round-up: Travis Perkins, Keller and Domino’s Pizza

The self-help potential of Travis Perkins (LSE:TPK) and US resilience of dividend stalwart Keller Group (LSE:KLR) today put their shares back on track in a session when Domino's Pizza Group (LSE:DOM) hit a multi-year low.

The takeaway and delivery firm slid 37p to 209p after it scaled back guidance for earnings and said store openings this year are now set to be in the mid-twenties rather than 50 or more.

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Chief executive Andrew Rennie said: “There’s no getting away from the fact that the market has become tougher both for us and our franchisees, and that’s meant that the positive performance across the first four months didn’t continue into May and June.

“Given weaker consumer confidence, increased employment costs and uncertainty ahead of the Autumn Statement, franchisees are taking a more cautious approach to store openings for the time being.”

Pre-tax profits of £43.7 million fell 15% in the half year, reflecting a broadly flat underlying sales performance in the face of tough comparatives, hotter weather and lower confidence.

Broker Peel Hunt cut its profit forecast for this year by 12% and lowered its price target from 425p to 350p, noting that Domino’s has taken significant share in a tough market. 

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On the FTSE 250 risers board, Travis Perkins pulled out of its recent slump by reporting an improved second-quarter performance in its builders’ merchant division.

Like-for-like sales declined by 1% in the period compared with 3.2% in the first, boosted by management actions to drive a more customer-focused approach.

RBC Capital Markets said other positives included a “very strong” UK margin performance by the Toolstation division, which lifted its half-year operating profit from £7 million to £15 million.

Operating profits across the group fell 22.5% to £62 million, leading to unchanged expectations for the full year. An interim dividend of 4.5p a share is due to be paid on 7 November, down 18.2% but in line with the company’s policy to pay 30-40% of adjusted earnings.

A big beat on free cash flow helped leverage to fall to a ratio of 2.3 times net debt/earnings from 2.7 times a year ago. The group is targeting a range of 1.5-2 times.

Shares rose 33.5p to 568.5p, which compares with RBC’s new price target of 865p and Peel Hunt and Stifel at 750p. 

RBC lowered its price target from 1,050p as tough market conditions and weaker-than-expected margin in merchanting caused it to cut earnings forecasts for this year and next by 3.5% and 5% respectively.

RBC said: “We continue to be positive, however, believing markets are troughing and that there is significant self-help potential. We remain at Outperform.”

It added that chair Geoff Drabble and incoming chief executive Gavin Slark, who starts in January, represented a formidable team capable of delivering material improvements over the next few years. 

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Stifel adds that the ingredients are in place for the recovery of the repair, maintenance and improvement market, especially in light of 15% increase in housing transactions in the year to February and stronger consumer balance sheets. However, confidence remains elusive.

Peel Hunt notes the shares are trading on 15 times forecast 2025 earnings, falling to about 10 times for next year. It said: “We see material turnaround potential in Travis Perkins and retain our Buy recommendation.”

Keller’s interim results and unchanged full-year guidance today provided reassurance after a poor run by the ground engineer’s shares since the end of May.

The FTSE 250-listed stock surged by more than 65% in 2024 but headwinds caused by the weaker dollar and concerns over the health of the US economy have weighed this year, leaving shares 9% lower prior to today.

On Peel Hunt’s current forecasts, this has left Keller trading on a “very undemanding” price earnings multiple of 6.1 times for 2025 and 5.6 for next year. It has a price target of 2,250p, which compares with 1,390p following today’s rise of 72p.

The interim results showed a 6.3% drop in underlying operating profit to £102.6 million, driven by a 20% decline in the biggest division of North America amid a return to more normal trading conditions.

The US decline was partially offset by improving profitability elsewhere in the group, ensuring that Keller lifted its interim dividend for payment on 12 September by 10% to 18.3p a share.

Keller boasts a strong record on shareholder distributions since listing in 1994, with a compound annual growth rate of 9%. It said it intends to return to a more normal progressive 5% dividend policy for the 2025 financial year.

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Boosted by a strong balance sheet, the group also announced its intention to launch an additional £25 million share buyback in the second half of the year.

Keller added that the broader North American infrastructure market was relatively resilient and that its order book in the region remained strong at the end of the first half at just over £1 billion.

The North American margin fell from last year’s 12% to 9.5% but analysts at Berenberg said this was still robust relative to prior years.

While mindful of conditions and project risk, the bank highlighted the optionality provided by  Keller’s balance sheet. It regards  shares as cheap on about 4.6 times forecast 2025 earnings, leading to a price target of 1,900p.