Interactive Investor

Shares round-up: Rentokil, Travis Perkins, Pendragon

22nd October 2020 13:54

Graeme Evans from interactive investor


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The stocks that can work with pandemic trends were enjoying strong share price gains today.

From Rentokil Initial (LSE:RTO) to retailers in the midst of purple patches, some of the stocks well placed to capitalise on pandemic trends were enjoying strong share price gains today.

They included Wickes and Toolstation owner Travis Perkins (LSE:TPK), whose shares rose 2% in the FTSE 250 index after like-for-like sales surged 8% in September due to spending on DIY projects.

Shares in car dealership Pendragon (LSE:PDG) added 12% as pent-up demand for new and used vehicles meant its third quarter profits were almost enough to eradicate the losses caused by the first-half lockdown. 

And AIM-listed Gear4music (LSE:G4M) was trading at a two-year high as rising interest in playing musical instruments helped it to perform well ahead of City expectations.

In the FTSE 100 index, Rentokil Initial was near the top of the risers board after its third quarter update showed that revenues were almost 10% higher on constant exchange rates.

Demand for disinfection services lifted its hygiene division sales by 53%, with the reopening of hospitality sites after national lockdowns boosting its normal washroom business.

CEO Andy Ransom said the company performed “very strongly” in the September quarter, meaning that July's guidance for a resumption of dividend payments alongside February's annual results remains in place. The company is also looking to spend at least £100 million on bolt-on acquisitions over the second half, having already struck five deals in pest control.

Shares were 3% higher at 532.4p, compared with 340p in March when lockdowns prevented the company from carrying out its usual washroom and rat catching activities. UBS, however, has a price target of 460p amid concerns about trading outside the short-term boost from disinfection services.

The strong September for Travis Perkins meant the company's like-for-like sales improvement of 3.9% for the quarter was much better than the unchanged performance forecast in the City.

It comes amid strong activity in the repair, maintenance and improvement market as households use the money they might have otherwise spent on a summer holiday. 

Assuming further lockdown measures do not significantly impact the business, the group now expects underlying earnings to be in the upper half of the current consensus of between £222 million and £261 million.

Broker Jefferies has a price target of 1,439p and said it viewed Travis Perkins shares as inexpensive versus construction peers at about 15 times 2021 earnings. Deutsche Bank also reckons shares are worth 1,400p.

Similar spending trends have boosted Pendragon after pent-up demand and the benefits of its own restructuring efforts helped it to report underlying profits of £27.3 million for the September quarter. This has reduced the year-to-date loss to just £3.6 million.

Analysts at Berenberg said the leaner cost base and robust sales momentum meant its breakeven forecast for 2020 may prove conservative ahead of a meaningful recovery in profitability in 2021.

Under his turnaround strategy, CEO Bill Berman is targeting underlying profits of £85 million to £90 million by 2025. His plan features a greater focus on the used car market, plus more digital innovation and the growth of its Pinewood division, where the dealer management system and customer relationship management tool have enjoyed strong growth.

Pendragon's new vehicle revenues were down 1.2% on a like-for-like basis in today's update, but this was better than the wider market. It was in the used car sector where the company showed progress after the right-sizing of the business helped like-for-like gross profit to rise 25.9% on a year earlier.

Shares jumped by a fifth to 12.66p, which is the highest level since February. They were 8.8p in September after Berman announced his updated strategy and 10p soon after the re-opening of its dealerships in June following Covid-19 lockdowns.

The recent progress for AIM-traded Gear4music has continued after it reported sales growth of 42% to £70.2 million in the six months to 30 September. With October trading also encouraging, the company is confident that full-year results will beat City expectations.

CEO Andrew Wass said:

“Our customers are continuing to appreciate the benefits that playing and creating music can bring during these difficult times.”

While the company highlighted the potential impact of Brexit and the pandemic on second half trading, Progressive analyst David Jeary raised his 2021 profits forecast by 13% to £7.6 million and said forecast risk was weighted to the upside. Shares rose 18p to 708p.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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