Shares of Travis Perkins PLC (LON:TPK) climbed 1.25% following the company’s announcement of the sale of its non-core business, Staircraft, to Gait Consulting for £24 million, a move aimed at bolstering the company’s balance sheet and focusing on its core operations.
The disposal, which represents approximately 2% of Travis Perkins’ market capitalization, was not previously included in the company’s financial guidance, suggesting a potential reduction in consensus EBITA by £2-3 million.
Travis Perkins’ decision to sell Staircraft aligns with its strategic shift away from manufacturing towards distribution. The sale price matches the valuation post-impairment at the end of FY24, reflecting a loss on the original purchase price.
This step is part of the new management team’s plan to streamline the business and address previous missteps.
The proceeds from the sale are intended to reduce leverage and fund selective investments in Travis Perkins’ core distribution business. Despite the sale, Staircraft’s disposal will not be classified as a discontinued operation due to its minor significance.
Looking ahead, analysts remain upbeat about Travis Perkins’ prospects. The U.K. construction sector, particularly in housebuilding and infrastructure, is showing signs of gradual improvement.
Moreover, Travis Perkins’ potential for internal enhancements is expected to lead to better free cash flow and return on invested capital over time. Although the company has faced challenges, including the recent CEO departure, the overall opportunity size for Travis Perkins has not diminished.
Analysts from RBC maintain a positive outlook, as reflected in their statement: “We continue to be positive, believing the outlook for UK construction is slowly improving especially in housebuilding and infrastructure and that there is significant self-help potential within the group, which should lead to much-improved FCF and ROIC through the cycle.
RBC analysts also said that the departure of Travis Perkins’ CEO was unfortunate and that the company would need to make strong hires for both the CEO and Head of Merchanting roles.
However, they noted the size of the opportunity remained intact. Despite current trading challenges, they viewed the valuation as attractive, supported by the market value of the firm’s freehold property and inventory, and maintained a target price of 1,050p.
