16th Jun 2023 11:00
(Alliance News) - Builders' merchant Travis Perkins PLC warned of lower annual profits on Friday, dragging down London-listed peers and housebuilders in a negative read across.
Shares in Travis Perkins slumped 5.7% to 817.60 pence each in London on Friday morning. Over the past 12-months, the stock is down 18%.
London-listed housebuilders struggled on the back of the update. FTSE 100-listed housebuilder Barratt Developments lost 0.7% and DIY retailers Kingfisher and Wickes PLC lost 1.3% and 4.3%.
"Travis Perkins' warning caused ripples across housing-related companies on the stock market, with select housebuilders, DIY retailers and building materials suppliers falling in sympathy," said AJ Bell Investment Director Russ Mould.
Davy Research said that given the size of Travis Perkins size, with annual revenue of about GBP5 billion, virtually all generated in the UK, the updates "will naturally carry a wider resonance".
The Northampton, England-headquartered company said it now expects to deliver a full year adjusted operating profit of around GBP240 million. It previously forecast profit of GBP272 million.
In 2022, Travis Perkins reported adjusted operating profit of GBP295 million. Therefore, the company is expecting a 19% annual fall in profit.
Travis Perkins said it had delivered a "resilient" performance in the first quarter of 2023, but it has not seen the anticipated easing of market conditions in the second quarter to date.
interactive investor Head of Investment Victoria Scholar said: "The building materials supplier has been caught up in the cocktail of pressures facing the UK property market from rising interest rates, build cost inflation and the cost-of-living crisis. The high price tag for building materials have inhibited construction and refurbishment demand."
Davy Research agreed that the "soft" UK residential end-market is "clearly" the reason for the profit warning.
"Interest rate hikes have already caused cracks in the housing market and there are fears things could get a lot worse," AJ Bell's Mould added.
On Thursday next week, the Bank of England will make an interest rate decision. The BoE's current benchmark interest rate is currently 4.5%, following a 25 basis point hike in early May.
"Sadly, we've got to the point where interest rates have gone up so much, so fast, that many homeowners can no longer afford home improvement projects. For many, mortgage payments have become punishing if they've rolled off a fixed rate deal in the past six months or so, and others are watching their pennies closely for fear that rates aren't going to fall back any time soon," explained Mould.
Elsewhere, Travis Perkins said it "continues to see more resilient performance across its other end markets - namely commercial, industrial, infrastructure and public sector housing - and Toolstation continues to perform in line with expectations both in the UK and Europe".
Travis Perkins will report half year results on August 1.
By Sophie Rose, Alliance News reporter
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