Travis Perkins
Actual third-qtr sales growth 5.5%
John Carter, the chief executive of Travis Perkins, says that the market should have appreciated the summer slowdown in the repair, maintenance and improvement (RMI)business. Wolseley warned last month of competitive conditions in heating. The Office for National Statistics’ figures for July and August showed a decline in sales into repairs and maintenance, off by 7 per cent in August.
Michelmersh, the brickmaker, mentioned a soft summer only the other day. One could add the profit warning yesterday from SIG, which mentioned the decline in UK RMI. Yet the market is not always good at reading the obvious signs and Travis Perkins shares plunged 118p to £18.45. Mr Carter insists that this is a temporary blip and does not affect his five-year plan, now 18 months in, to transform the company, nor the punchy targets on return on capital that he is forecasting, 16 per cent to 17 per cent by the end of the programme.
After that summer slowdown, demand has picked up again into the autumn. Nothing that has happened should have affected the strategy to increase the number of basic merchanting stores and grow market share, while adding to footfall through these by putting in the company’s specialist retailers, such as Toolstation.
The company had been expecting some softening in its markets during the summer because of the slowdown in people moving houses at the end of last year and into this year, because there is typically a nine-month lag between this and spending on new kitchens and bathrooms.
Whether you accept his argument that the weak euro meant a flight of both holidaymakers and eastern European builders from the UK, the market was worse than expected.
Part of the problem is that the Travis Perkins share price had run up in the summer to an extent that, at above £22.50, they were selling on an earnings multiple of nearly 18, which is pretty strong for a company that basically sells bricks and mortar. This sent the yield back to about 2 per cent, providing little support.
At today’s level, they sell on a more reasonable 14 times earnings. With little prospect of further surprises or the housing market peaking, I would be inclined to buy, given the prospects for improvement.
My advice Buy long term
Why The upset in the summer looks a minor one and the fall overdone. The five-year strategy will provide benefits in due course
Zoopla
Revenue £107m, up 33%
As one analyst helpfully points out, the mere fact that OnTheMarket (OTM) still exists remains a negative for Zoopla and Rightmove, the larger property websites. The former came in with some better figures than expected in its closing update for the financial year, but questions remain.
OTM was designed to bust apart this cosy duopoly by giving estate agents another choice. In this game, size is all. Zoopla is continuing to rebuild the number of agency members, up 146 since July to 12,702 but4,000 below the peak.
In the summer the company bought uSwitch, the price comparison site, for £190 million. The update suggested earnings for the year to the end of September of £48 million, some £5 million ahead of expectations. There is, significantly, nothing on how many of Zoopla’s existing users are now also using uSwitch.
The shares added 25¾p to 260p thanks to reassurance that expectations for earnings of £60 million or more are achievable. They are again substantially above the 220p at which they were floated in June last year, and change hands on more than 30 times earnings for the last year. Not much to go for.
My advice Avoid for now
Why Price multiple looks a bit too racy given uncertainties
Inchcape
Revenues £1.74bn, up 9.4%
One could assume that Inchcape, as a vendor of expensive cars in places such as Russia, the Far East and Australia, might have been a victim of the downturn in emerging markets and the continuing low price of commodities. Not as far as can be divined from its third-quarter figures.
Whether by luck or judgment, some markets in which it operates enjoy particular advantages that are keeping sales going, though not so Russia — about 9 per cent of sales and barely profitable.
In Hong Kong, though, it continues to benefit from changes to emissions rules that require the replacement of the commercial vehicle fleet. In Singapore, the legislation limiting the number of vehicles on the roads, requiring the periodic auctioning of permits to drive, is bringing in new customers, and sales were up by 50 per cent.
In Australia, with its Subaru SUV franchise, the company is focused on Victoria and New South Wales rather than in areas hit by the commodities downturn. These areas will drive growth henceforth, as well as the UK, where Inchcape is gaining from the boom in new car sales even if margins for used vehicles are weak. So, in the third quarter, revenues were up by 9.4 per cent in constant currency terms at £1.739 billion, though on a reported basis the gain was 2.5 per cent. The shares, up 24½p at 789p, continue to get the benefit of a rolling £100 million share buyback programme. They are back from 900p in the summer. I have suggested that the earnings multiple was a little rich but, on 15 times, they now look more reasonably priced.
My advice Buy long term
Why Shares now offer good value, given growth prospects
And finally . . .
I pointed out the other day, in the context of Lok’nStore, that the extraordinary property market in the southeast was throwing up some opportunities for companies of this kind. Now Workspace, which rents out often achingly trendy offices to growth companies, has sold an industrial estate in Leyton, east London, for £23 million, 25 per cent above book value. It is an entirely opportunistic deal. As industrial land finds other uses, any remaining will also command a premium. One wonders where it will all end.
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