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05 Mar 2021
FY20 postview (+15 questions for management)
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FY20 postview (+15 questions for management)
Travis Perkins plc (TPK:LON) | 727 54.5 1.0% | Mkt Cap: 1,545m
- Published:
05 Mar 2021 -
Author:
Bromehead Yves YB | Roger Paul PR -
Pages:
10
Summary of FY20 results
Travis Perkins'' FY20 EBITA (exc. property profits) stood at GBP216m, 1% ahead of consensus expectations. The magnitude of the beat was slightly disappointing given booming DIY trends in H220. December lockdown measures interfered with the pace of earnings recovery in our view.
Key news
Following the pause of Wickes demerger process in 2020, the process is restarting, with the closing expected as early as the end of April, a major near-term value creation catalyst. The disposal of the PandH division is once again put on hold near term with the priority being on further improving the division margin profile following an impressive achievement in H220. We think this is the best decision to achieve value-accretive exit multiples. In terms of shareholder returns, the group will reinstate a dividend in 2021 but comments during the call suggested the payout ratio will remain below pre-covid levels in 2021 as Travis Perkins will fund the EUR130m capitalisation of Wickes as part of the demerger process. The group did not provide much granularity on the 2021 outlook but management confirmed the early start of the year has seen similar trends as Q420.
Earnings
We cut our FY21 EBITA expectations (exc. property profits) by -9%, reflecting a more conservative view on retail margins and lower margins on the high growth Toolstation division.
Rating and target price
We maintain our Outperform rating but cut our target price to GBp1,650 (from GBp1,700) to reflect our lower earnings estimate, slightly offset by lower CAPEX estimates. We have also trimmed our TP yield to 6.5% vs. 6% previously given the pause on the PandH disposal and the more prudent shareholder return approach near-term.
Investment case
A turnaround story with a portfolio recycling strategy likely to drive a re-rating.