Why did Travis Perkins (TPK) shares drop despite profit upgrades?

Highlights 

• Building materials group Travis Perkins’ shares fell over around 3 per cent despite increasing its profit outlook in its Q3 2021 trading update.
• The group reported group sales growth at 13.1 per cent on a one year like-for-like basis, and at 13.3 per cent on a two-year like-for-like basis
• It now estimates its FY 2021 adjusted operating profit to be at least £340 million, due to solid performance.

Building materials group Travis Perkins’s (LON:TPK) shares fell sharply on Thursday, despite the group increasing its profit targets for FY 2021 in its Q3 2021 trading update.

Its noteworthy that the group has raised its profit target three times in the last 5 months.

Travis Perkins PLC’s (LON: TPK) share price performance

Travis Perkins’ shares closed at GBX 1,540.50, down by 2.84 per cent on Thursday, while the FTSE 250 index closed at 23,199.87, up by 0.12 per cent.

Comparatively, the retailers’ sectoral index was at 2,894.78, down by 0.63 per cent.

(Image source: EODHD/Others)

The group’s market cap stood at £3,546.36 million, and its one-year return is at 67.96 per cent as of 28 October.

Travis Perkins Q3 2021 trading update

The company reported its group sales growth was at 13.1 per cent on a one-year like-for-like basis and at 13.3 per cent on a two-year like-for-like basis. Also, its YTD 2021 sales growth was at 31.7 per cent on a one-year like-for-like basis and at 28.7 per cent on a two-year like-for-like basis.

The group’s merchanting business’ Q3 2021 one year like-for-like sales growth was at 15.3 per cent and at 11.8 per cent on a two-year like-for-like basis.

Also, its Q3 2021 Tool Station business sales growth was at 1.4 per cent on a one-year like-for-like basis and at 25.2 per cent on a two-year like-for-like basis. The data indicated that its Q3 2021 customer mix reverted to normal levels after very high demand from DIY customers in the past year.

DIY activity had witnessed a surge during the pandemic due to people willing to undertake more DIY projects at home amid lockdowns.

The group also increased its FY 2021 adjusted operating profit due to its solid performance, which is now estimated to be not less than £340 million. This figure also includes about £40 million in property profits.

Bottom Line

The UK construction sector has seen significant growth recently. However, the sector is expected to be impacted by the rise in raw material costs, a severe supply chain issue affecting the UK and also challenges with global sourcing.

However, the group’s CEO, Nick Roberts, stated that Travis Perkins was handling UK’s supply chain and cost inflation very capably. Roberts also added that the group’s end-market demand was still robust and that the group was well-positioned for future growth.

Moreover, the group also said that its Tool Station business had seen minimal disruption in customer service.