Travis Perkins was founded as the Benjamin Ingram company in 1797. It has grown through acquisitions, including of the Wickes Home Improvement Group in 2005 and Toolstation in 2012, and now caters to the needs of small DIY jobs through brands including Wickes, Toolstation and Tile Giant and for tradesman through City Plumbing, Keyline and BSS.
Neither of these business lines is easy, exposed as they are to the housing market and changes in consumer confidence. Even the market for repairing, maintaining and improving properties among those homeowners who decide not to sell — often cited as being insulated from fluctuations in the property world — is unpredictable and fiercely competitive.
A capital markets day late last year marked probably the biggest transformational moment in Travis Perkins’ recent history, when it told investors that it would be stripping the business back in order to become more focused and to create more value. The trade-only plumbing and heating division was put up for sale and a self-help programme was initiated at Wickes, the success of which has led the company to quietly pursue a separation plan here, too.
So far, so straightforward — but where are we now? Nine months down the line, there is as yet no firm buyer for plumbing and heating, although Travis Perkins has successfully severed the group’s links with the division, including the IT system, and is confident that the sale process will be completed by the end of the year. Trading at the unit has been suffering, with revenues dropping by 7.9 per cent to £713 million during the first half, although improved margins helped to lift operating profit by 9.1 per cent to £24 million over the period.
Apply a rough multiple of ten times annual operating profits, though — taking account of slower second-half trading — and that should still mean that the plumbing and heating division fetches £420 million or so, about what analysts had hoped for at the time the separation was made public.
Wickes has enjoyed something of a renaissance, helped by management introducing new ranges and improving the supply chain to improve product availability. The division lifted revenues by 8.9 per cent to £695 million over the first half and adjusted operating profits were up by a mighty 48.6 per cent to £52 million on a two percentage point uplift in the margin.
That augurs well for a valuation for Wickes, whose network of 241 stores should be worth a touch more than £500 million, assuming that the momentum continues. It is thought that management is minded to spin off Wickes into a separately listed business rather than sell it outright, a process that could take place during the first half of next year.
Both the likely sale and the spin-off look like good news for a Travis Perkins investor, who almost certainly would receive a share of the proceeds from the plumbing and heating sale, plus a share in a separately listed Wickes. What would be left at Travis Perkins would be a higher-margin group split roughly 70-30 between supplying the trade and consumers. The idea would be that spinning off Wickes would help to improve its value as a standalone business, while leaving the remaining company more keenly focused on its own strengths.
This column recommended holding the shares in December, when they stood at £10.86½. Off 17½p, or 1.3 per cent, at £13.35½ yesterday, they have since gained just over 23 per cent. Trading for about 11.6 times Bank of America Merrill Lynch’s forecast earnings, for a dividend yield of about 3.6 per cent, their appeal has grown.
ADVICE Buy
WHY Improving core supply business with prospect of special return and share in company spin-off
Stanley Gibbons
It’s striking that a company with as august a history as Stanley Gibbons should have a stock market value of only £9 million. The share price of this venerable trader of collectibles, notably stamps and coins, has fallen from more than 287p at its height to just above 2p. Some critics might be tempted, given its historically volatile earnings, to ask whether a business like this should ever have been listed in the first place. But that misses the point.
Stanley Gibbons was created in 1856 when the eponymous young philatelist opened a stamp counter in his father’s chemist’s shop in Plymouth. The company subsequently began publishing catalogues, opened an auction house, bought Baldwin’s, the coins business, did a disastrous deal with Mallett, a Mayfair art dealer, and along the way collected a royal warrant.
Part of the company’s problem was its reliance on sales of higher-value collectibles, the timing of which can be unpredictable — and despite the power of its name in the stamp world, Stanley Gibbons was also failing to capitalise on its potential overseas markets. Add to these an unsustainably high debt burden racked up through acquisitions and that equals a blizzard of profit warnings and, ultimately, a £19.5 million rescue in February last year by Phoenix, the asset manager, in exchange for a 58 per cent stake.
Much has happened since. Under new management, Stanley Gibbons has invested in rebranding Baldwin’s, an overhaul of its publications, catalogues and auctions and is preparing to redevelop its store in central London. It also has kept a close eye on costs, helping to lift the gross profit margin from 40 per cent to 51 per cent and to narrow the pre-tax loss for the year to March 31 to £3.3 million, from £5.4 million.
Is there a place on the stock market for Stanley Gibbons? Yes, if it is successful in its efforts to generate frequent mid-value sales rather than top-end sales and makes more of its list of active clients running into the tens of thousands.
The company is loss-making and pays no dividend, so traditional valuation metrics don’t apply. Those investors who own them should definitely hang on. There may be much better to come.
ADVICE Hold
WHY After a prolonged crisis there are signs of turnaround
