Travis Perkins builds on impressive rally

Travis Perkins shares are riding high despite tough markets. Can the FTSE 250 stock keep on delivering?

Wickes owner Travis Perkins (LSE:TPK) today produced more impressive trading numbers to reinforce its position as one of the stock market's more unlikely success stories of 2019.

Despite challenging trading conditions across the building materials and home improvement sectors, the FTSE 250 index stock has now risen by 42% this year to stand above 1,500p for the first time since January 2018.

Hopes of a Brexit resolution have certainly helped in recent weeks, with Travis trading 27% higher over the past fortnight. This includes today's 19p improvement to 1,509p after a stronger-than-expected trading update showed impressive like-for-like sales growth of 4.3% for the third quarter, compared with a forecast from RBC Capital Markets of 3.5%.

The performance represents a decent start to life at the helm for new chief executive Nick Roberts, who took over in August having previously been in charge at Atkins.

The share price improvement also reflects City support for the company's various strategic initiatives, which include a demerger of the Wickes retail business by the second quarter of 2020.

This plan is still going ahead, but Roberts said market conditions meant a separate move to dispose of the company's non-core plumbing and heating business had been put on hold.

Analysts at Bank of America Merrill Lynch said the delay should not come as a surprise, adding that a disposal was still possible next year should conditions improve.

They believe the Travis Perkins share price rally has further to go, with the asset disposals expected to result in higher margins and returns over time. The stock is trading on a 2020 price/earnings multiple of 14 times, which is slightly above the long-term average, but the US bank thinks 15 times and a price of 1,660p is achievable. 

They added today:

"We believe it should trade at the upper end of its trading range when visibility on volumes improves into 2020 and with the planned simplification of the group structure."

RBC Capital Markets, meanwhile, have a target price of 1,600p. They noted the company's management was doing the right things strategically by creating a more focused group.

Toolstation remains the stand-out performer for the group after like-for-like sales jumped 15.4% in the third quarter, helped by the recent addition of 4,000 new products, the roll-out of IT systems and the opening of a third distribution centre. The expansion of the estate to more than 370 UK branches meant the business grew total sales by 21.3% in the period. 

Wickes also did well with same-store growth of 9.7%, while the core merchanting division continued to outperform in challenging conditions after a rise of 1.6%. Earlier this month, shares in building supplies firm SIG (LSE:SHI) fell sharply after it warned of significantly lower underlying profitability for the full year.