Travis Perkins Share Discussion Threads

[hjb] 30/11/2001 11:44

I have just finished rewiring our house, I'm an accountant not electrician by trade, but am sure that it has been done to a much higher standard than had I employed an electrician. I swear by MK products, expensive but you get what you pay for. I'm Ok with plumbing and electrics, but hopeless at plastering. Are you in DIY mode at the moment?

I have told my wife that I want my 2 year old lad to learn a trade when he grows up. Trademen (good ones) will earn far more money than the rest of us 'educated' folk, and get far more job satisfaction at the same time.

When I got my degree, I was one of 5% of school leavers. It's now 25% I believe, and Tory Blair is talking about 50%. What's a degree going to be worth in the future, and what's a good joiner going to be charging?

Sorry,..... I'm digressing.

[tradesman] 30/11/2001 11:27

You dont do electrics do you????

[hjb] 30/11/2001 10:03

Tradesman - sorry just read your posting. I must say that our business was awful in August/September, and I was fearing the worst. Hence my shorts. However, business in October/November has picked up dramatically which coincides with GET's latest statement.

I've not turned optimistic overnight, but rather feel that in the building materials business we are walking a tightrope at the moment and things could go either way. This is probably true of most businesses at the moment I guess, and is why with the odd exception I don't want to be long or short in anything at the moment.

My feelings about TPK still stand, they have reached the end of a successful strategy imho, and are valued by the market (as the market always seems to) on the basis that that growth can continue indefinitely. It cannot.

Agreed about new houses. They are total cr@#. Built with a life expectancy of about 40 years. I should know, I've worked for a few housebuilders and have never owned a house built after 1908. Suggest everyone reads Jeff Howell in The Sunday Torygraph, or visit his site:

[hjb] 29/11/2001 00:13

My £7 Travis Perkins target is looking very possible at the moment. It's a shame I got spooked out of my short, though thinking about it again.

[tradesman] 28/11/2001 18:05

Sorry if you feel your talking on your own.

Take a look at GETs results out today ( Epic I think GTG), a supplier to travis perkins of wiring accessories ( sockets switches etc). These go into a building after the majority of heavy side has been purchased. GET figures show a rise mainly due ( estimate IMHO) to the new ranges and more products they have in BQ.

Not from TP.
But show a very bad summer - below budget.

Its going to get messy. When you cut the price right back you compromise on quality. Some electrical products are getting to the point where they are very poor quality ( minimal ) and just do the job.

However when you buy a new home I dont expect you try all the switches to see how they work. they are cr@#.( I would say that though )

Off my soapbox

[hjb] 14/11/2001 10:10

I note that SHI have had a very strong run in the last few days, this together with the conditional purchase I mentioned above does make me suspicious that there is some corporate action imminent.

I seem to remember the management rebuffing a rumoured 320p offer from some American venture capital company two years ago, I wonder if this is back on the cards? Perhaps they are now more responsive to offers if market conditions are tough.

Not long, but certainly not considering going short now.

[hjb] 05/11/2001 17:16

Must confess that I have contadicted myself (about the short to run for a while), and closed both my SHI and TPK shorts on Friday. Somebody made a conditional purchase of 45,000 SHI shares at 5p above the offer on Thursday which spooked me, they have always looked vunerable to a bid. I made good money on SHI, and did £50 better than brake-even on TPK.

I still feel that my comments above are valid, and will be revisiting my TPK short in a while.

[hjb] 31/10/2001 22:45

One thing for sure, this market is changing, there is likely to be a level of the distribution channel taken out some time in the future but which one I don't know. Perhaps it is this level of risk in this business that has led to consolidation and always meant that BMs have traded at discount to market averages.

I've always been interested in the niche occupied by SIG. At first glance their materials are just building products like any other, but TPK and the other BMs do not distribute these products but leave this niche to SIG. It amazes me that SIG can make money in their business, but they seem to. Perhaps SIG carry even more perceived risk than the BMs, which is why they trade at even more of a discount. Would not be surprised if Rockwool or Pilkington decided to distribute their own product, or sell direct to TPK.

I'm shorting SIG as well. Not because of what may or may not happen with the structure of the building materials distribution, I'm not that clever. It's just because they seem to be going down. :-)

[tradesman] 31/10/2001 17:29

Where to go from here, the market for electrical wholesalers is one I cannot believe wont get trashed soon. There can be no room for such a specialised supplier- who is no longer a wholesaler as only the big ones keep an adequate stock.

Where do suppliers fit in-one thing BQ does do is commit to large quantities- tough for BMs to do that as the buying power is much less focussed, branch managers of BMs are very focused on stock and hence use manufacturers.Stock is what killed the smaller ones in the last recession, I know I worked for one.

So the result-manufacturers move there manufacturing abroad. They then carry more stock or get it wrong. Either way they fund the BQs of the worlds ability to sell there products. They finance it and take a margin for 'innovating' a wall socket or outside light. Usually this is quality down, price down.

TPK is regional- but grahams was northern based. They are trying to innovate there retail formats but always with one eye on not copying BQ. While BQ copy like mad anything that may work-and in there case size matters.untill they find a concept that works.

Did you know an avaerage BQ warehouse customer drives 34miles to visit, while only 9miles to a normal BQ.
Thats some pulling power in todays road network.

What will happen- suppliers will try to find a way of going direct. Screwfix is currently the only viable tool-now owned by BQ.
Its muscle that counts now- it would be interesting to see what solutions the market throws up.
By the way Im relating this to elctrical product-not HBM like sand which will remain locally sourced thru bulk and weight.

[hjb] 31/10/2001 16:22

MTG/Tradesman - this is my background too. My anecdotal evidence is that the industry, if not technically in recession, is pretty close. This is not currently the thinking of the analysts, hence the tips, but I am sure there are a few Builders Merchant CEs sweating at the moment. I don’t think Jewsons are trading too clever, but obviously I cannot short those!!

As ever, margins just get tighter, and tighter,....... and tighter.

I also believe that B&Q are dipping their toe into the water of the BMs market on certain products, this imho will prove to be a dangerous strategy, in fact I think the proverbial cat may be in the pigeons in due course.

TPK is still predominantly southern based, and there is probably room for further smaller acquisitions “up north” as with Broombys earlier this year. As for the much rumoured Gibbs&Dandy, I don’t think TPK would be allowed near them due to the regional monopoly this would result in. TPK’s growth has come from acquisitions and I really believe that this strategy has run its course.

I have shorted these with a £7 target over a reasonable time frame, possibly to the next results, or when the market begins to grasp the true reality of the market place.

I notice that those nice MMs, while marking the price down, have widened the spread considerably thus preventing any quick in and out trade. Was it just a coincidence that it was marked down shortly after I started this thread?

[tradesman] 31/10/2001 16:01

Focus are trialing a new 'warehouse' format.

BQ will not take the ground covered by Bms as they dont have the inherent staff with knowledge.
The buying teams look for different criteria when buying to the Bms.

I believe wickes will be left alone and will be the heavy side typew supplier while Focus will continue selling parrots and goldfish alongside Lihght building materials and the odd bag of sand.

There is a major margin war on at the moment- suppliers have been screwed right down( I know Im one).

[m.t.glass] 31/10/2001 15:43

Price tumbling quite briskly now...

[m.t.glass] 31/10/2001 15:35

I was chief buyer for a construction co for 10 years, admittedly before TPK took off on its growth path. I agree with most of the above analysis, though I don't regard B&Q as seriously overlapping their main market (goods delivered to site, same day/next day, and largely sourced elsewhere). Wickes might continue to satisfy the cash-&-carry one-man tradesman for a few items (as long as new owners Focus don't turn the place into pet shops like their other ex-DIY stores). But for serious builders main competitors surely remain the main builders merchants chains and the best of the local/regional independents that still exist(?).

[tradesman] 31/10/2001 15:23

Jewsons is part of st gobain , a massive european wide builders merchant group with many branches.
TP is localised and can weather european problems better than any, unless of course the UK building industry goes into recession which at the moment doesnt appear the case.
They do however have merchant branches that are old and need modernising.
The growth potential is still strong with many small groups up for sale. At what price.
Keep an eye on gibbs and dandy as apotential next aquisition by one of the groups.

[hjb] 31/10/2001 14:23

Welcome to your new job tomorrow as Chairman, Tim Stevenson. I shorted your company’s shares yesterday.
:-)

This share is currently close to its all time high following numerous tips over the last few weeks. I think they have been puffed up on the back of these tips and I am now predicting that we will now see some retrenchment. I also believe that market conditions in this sector have taken a turn for the worse over the last few months and becoming increasingly tough. A few of you are aware that I know this industry well.

The so far successful strategy of acquiring smaller builders merchants, and introducing TP’s efficiencies and buying power, must have gone almost as far as it can. The Competition Commission are likely to see to that. IMHO this is probably why TP hinted at looking at overseas markets in the latest results. Risky.

I note that the current Chairman, ERA Travis, announced today’s early retirement at quite short notice only last month. Leaving at the top, unable to decide on strategy going forward, market conditions??? I also note he sold 600,000 shares earlier this month.

They currently stand on PE of 15.5, which does not seem high in the market as a whole, it is a considerable premium however compared to their peers. That said, they are considered a quality company, and I will not attempt to agree or disagree with that perception.

Most of the tips make mention of the company’s strong cash flow. Yet it has moved from cash of £34m at the end of 1997 to loans of £191m at the end of 2000. Remember, this is an acquisitive company. The management’s current strategy is to spend the company’s and it’s shareholder’s money on buying businesses. I doubt it will ever be significantly cash generative, before financing, until it stops acquiring businesses. I also doubt that it will stop acquiring businesses until it is stopped by the Competition Commission, or until market conditions significantly deteriorate. My money is on both currently.

Much of TP’s buying power, and reflected in their margins, will be supplier rebates. Being the biggest, they will have the best rebate deals. Acquiring companies immediately brings these new companies into their rebate structure. If they are unable to acquire, this will effect their margins. If market conditions deteriorate, and I think they have, this is even worse since the rebate deals will be target related. Any fall in purchases can have a dramatic effect on margins. I will be examining TP’s stock turnover ratio with the end of year results to establish if they have needed to increase stock levels to achieve targets.

I believe that TP is basically a good, well run company. I just feel that the share price has run up too high, their acquisition strategy has run it’s course, and most importantly their market is now in downturn. Also they will now be feeling the pressure from the likes of B&Q and Wickes who have been increasingly targeting TP & Jewson’s customers.

These are just my thoughts, I wanted to put them in writing to reinforce them to myself, so thought I may as well share them. Grateful for any comments/criticism, but don’t expect any.

[kd1] 07/9/2001 07:52

Breaking into new ground.
Also tipped in the Times:
Travis Perkins
THE Travis Perkins plan is pretty simple. The building materials supplier wants to get bigger and become more efficient. If it does both, good profits growth will follow. But the group has a convincing and simple strategy for achieving its aim of operating 800 outlets in five years time, up from the 500 now owned.
Most of the acquisitions will come by trawling the 2,000 or so independent outfits that still account for more than 50 per cent of the market despite the presence of TP and Jewson and Wolseley, its big rivals. These independents have none of the buying power of chains like TP and will be struggling to compete on price. But few are likely to have the necessary networks required to ensure ready availability of product.
The jobbing builders who make up the customers in this market are price-conscious, but they may view the availability of materials as an even more important factor.
TP can therefore win control of new outlets without paying the earth. It can also deliver rapid efficiency gains by plugging the independents into its network.
At the same time TP can look forward to seeing some growth in its market and it is also winning further efficiency gains out of its existing chain.
TP shares have motored to a record peak in recent months. But at 791p yesterday, the shares sit on a forward p/e of only 11. Sustained profits growth could fire further share price gains even if the rating does not improve. In the fullness of time TP may also be bid for. Buy.

[mikehardman] 13/8/2001 10:56

Yup - I agree kd1 - keeping an eye on it...
A move up in the FTSE100 will buoy the market in general and probably lift TPK through the previous highs where it is taking a breather now.

[kd1] 12/8/2001 08:56

Now approaching the all time high of 797. I'm expecting some hesitation and then a push into new ground.

[pdm] 10/8/2001 08:29

Wolseley is an interesting play if you're looking for exposure to this sector in the US...if consumer confidence turning negative stateside its only a matter of time before it comes over here. Consumers spending is the only thing which has kept US out of recession so far (ie still buoyant housing market etc). A more cautious environment would be a double whammy for wos(bad US, bad UK). On the plus side, more rate cuts are on the way. After the share price run up in these companies, the only way is down in my view.


pdm

[kd1] 10/8/2001 07:19

The run of daily gains comes to an end. Now you know what kd stands for - kiss of death!

[kd1] 09/8/2001 07:22

Currently top of the "constant gainers" list (7 days)

[tradesman] 08/8/2001 20:14

HNS is more building material than tpk which is merchants, more defined markets for tpk and so more reliant upon UK.

Wolsey has many us interests unlike tpk which is uk based and spread.

[kd1] 06/8/2001 22:49

KeithWUpton - you could be right, maybe someone knows something about the results

MikeHardman - thanks for that, its reassuring that someone else has a similar feeling about this share. My target figure is around 1080, based purely on the chart.

[mikehardman] 06/8/2001 20:58

I have recently gone long of TPK on the basis of its chart - rising off base of uptrend (from sep01) and still below previous highs. It is always difficult to say how far a stock will rise, but 'to the topside of the uptrend' is one answer; the next question being "How long will the uptrend last ?" I got it wrong when buying into Balfour Beatty (BBY), which fell back for little reason other than having risen too far too fast. With TPK, the rise has been much less steep, and hence (I believe) much more likely to continue. The previous highs come in at 786-800p (mid price), so I would expect some hesitation there as it hopefully continues up. Looking at the 5year chart, I see a possible broader uptrend (base: lows early 1999, late 2000; highs: early 1997, early 1998, mid 1999). If the price breaks above 800p, I would be hoping for the last few months' uptrend to continue to around 1000p at the topside of that larger uptrend, though the ride up there would undoubtedly have its dips.
The 10year chart shows the current general rise starting back in 1993, BTW.
TPK has outperformed the building materials and construction sector indices the last 3 years and the last 8 years, so it could be a little toppy, but if the sectors recover (as seems likely), TPK should go with it.

Do fundamentals support this rise ? I believe so. With house building and home DIY doing OK in general, with homeowners having their mortgage repayments falling, and with a solid company history, with consumer confidence figures OK, and with investors looking for good plays while manufacturing industry and techs are still problematical and/or volatile, established old economy stocks like TPK have attractions.

Brokers (12 of) say add/hold on average.

I have not compared TPK P/E (etc) with Hanson (HNS), WOlseley (WOS), etc., would appreciate anybosy's comments on that...

Re the charts for HNS and WOS:
- WOS is bumping up against horizontal resistance again, where it has been several times since 1997; one might argue it is time it made it up and through, but one could also argue for history to repeat itself and for the price to fall back again. It looks unconfortably high above the building materials and construction sector indices; I'm tempted to short it...
- HNS has been down and is perhaps in the process of recovery, and its charts suggests to me it could also go higher, but it is coming to a point, so I may steer clear as I believe that if it does rise, it will do so steeply but for only a brief time before falling below its current. HNS has underperformed the building materials and construction indices the last five or six years, though it has been in-line the last 3 years. Since the sector is due for recovery (methinks), maybe HNS (as a good recent reflector of that sector) is worth going long of after all.