4th Aug 2015 09:44
LONDON (Alliance News) - Builders' merchant and home improvement retailer Travis Perkins PLC on Tuesday hiked its interim dividend by 20% on the back of a rise in profit driven by stronger revenue and robust like-for-like sales growth.
But shares in the company sunk in morning trade amid concerns about its reliance on an improvement in market conditions in the second half and as its shares trade close to highs.
The FTSE 100-listed company, which runs the Wickes DIY chain along with plumbing and heating and contract merchanting businesses, said its pretax profit for the six months to the end of June was GBP158.6 million, up from GBP153.7 million a year earlier.
Revenue for the group was up to GBP2.94 billion in the half, from GBP2.73 billion a year earlier, as like-for-like revenue grew 5.7%. Travis saw good sales growth in its general merchanting, contract merchanting and consumer businesses in the half, though it saw a small decline from its plumbing and heating business.
Travis said it will pay an interim dividend of 14.75 pence per share, up 20% year-on-year on the back of the strong result and its confidence on its outlook for the second half.
"The group has delivered a strong underlying performance in the first half. Our key strategic priorities are unchanged: modernising general merchanting, transforming Wickes and completing the plumbing and heating re-segmentation programme. We continue to anticipate a full-year result in line with expectations and are delivering on our targets, including low double-digit profit growth and sales outperformance of our markets," said Chief Executive John Carter.
Despite the rise in profit, shares in Travis were trading down 3.0% to 2,193.00 pence, one of the worst performers in the FTSE 100. Augustin Eden, an analyst at Accendo Markets, said "it appears that simply stating that 'there are signs of recovery' in the only market whose department posted a decline are not enough for shareholders", referring to Travis's plumbing and heating business.
Eden added that investors may think shares in the company looks a bit expensive given they are currently around pre-2008 levels.
Analysts were mixed on the results too, with Davy Securities saying Travis' first half was weaker than it expected. Flor O'Donoghue, a Davy analyst, said the first half performance leaves the company with "considerable ground to make up" in the second half.
But Panmure Gordon disagreed, saying Travis will benefit from a mostly positive near-term macroeconomic environment in the UK. "The broad portfolio of distribution brands is clearly performing well and given the near-term macro environment we expect positive trends are maintained," said Panmure analyst Adrian Kearsey, though he said there appears to be little short-term upside to Travis's share price.
The only decline in revenue on a divisional basis for Travis came from its plumbing and heating business, though it said it is seeing signs of recovery in the unit, particularly from the local bathroom installer market. Travis said heating market conditions continue to be tough amid competitive pricing for both its Plumbing Trade Supplies and its F&P Wholesale businesses.
Travis said revenue in the division declined in line with its expectations, down 0.7% in total and down by 2.9% on a like-for-like basis, due to the non-recurrence of sales linked to the Energy Company Obligation Scheme in the UK, tougher market conditions, and disruption to the division from the re-segmentation programme, under which Travis is converting its branches to retool the weighting each sub-segment of the plumbing and heating unit has.
The group said the re-segmentation process is on track, with 45 branch conversions from the PTS brand to City Plumbing completed in the half, bringing the total number of conversions to 94 out of a planned 180. A further 25 branches were closed in the half where the sites were not considered to be well-positioned.
The rest of Travis Perkins' business units all delivered robust sales growth in the half, however, with its core general merchanting arm posting total revenue growth of 7.8%, with like-for-like sales rising by 6.7%. Sales in the unit outperformed the wider market, Travis said, with growth particularly strong in heavy side building materials categories.
Operating margins in the merchanting division were broadly flat in the half, with good progress in sourcing initiatives and solid price inflation pass-through, offset by continued investments in the business. It said its modernisation plans are on track, with more than 400 of its branches now served by heavy-side range centres, which has improved the availability of heavy-side products and resulted in sales rises for those branches supplied by the centres.
The strongest area of growth in the half was contract merchanting, where revenue increased by 18% in the half on the back of very strong growth for Travis's Keyline heavy-side and civil projects merchanting business and for its CCF insultation, dry-lining and partitioning distributor. Gross margin in the division was dragged down by 120 basis points, however, thanks to higher sales growth in lower-margin businesses, a shift towards heavy-side products at Keyline and competitive pricing for the BSS heating and ventilation distribution business.
Revenue in Travis' consumer DIY business was up by 8.6% in the half, with like-for-like sales rising 6.5%. Margins were maintained in the unit while the expansion of the Toolstation business is on track, it said, with 18 branches opened in the first half, meaning it now has 202 branches of the trade tools, accessories and hardware retailer in the UK and the Netherlands.
The consumer arm also benefited from a continued improvement for Wickes and encouraging growth in the Tile Giant business. Online sales for Wickes also increased in the half and now represent 8% of total sales for the business, Travis said.
By Sam Unsted; [email protected]; @SamUAtAlliance
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