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Travis Perkins downgraded by UBS as analysts question investment pay out potential

The Swiss investment bank said “a lack of clear market outperformance” on several investments meant that returns would be “weaker than initially anticipated”
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UBS analysts also cut their target price on the stock to 1,515p from 1,715p

Travis Perkins PLC (LON:TPK) has been downgraded to ‘Neutral’ from ‘Buy’ by analysts at UBS amid concerns around the potential pay out of sUBStantial investments made by the firm.

In a note to clients, the Swiss investment bank said “a lack of clear market outperformance” on several substantial investments made by the FTSE 250 builder's merchant between 2014 and 2017 meant that returns on these investments would be “weaker than initially anticipated”.

READ: Travis Perkins repeats 2018 guidance despite hit to sales from Beast from the East

Analysts added that “accelerated cost cutting” would be required in the second half of the company’s financial year due to weather related delays in the earlier periods which would leave the risk-reward balance “unfavourable on earnings outlook”.

“We expect a 10% EBITA [underlying earnings] drop in [the first half] to £170mln (incl £5mln of property profits) which requires +11% EBITA growth in [the second half] (+16% ex property profits) in order to hit guidance of £380mln…We think cost cutting will need to be stepped up for [financial year] guidance to be held]”.

Considering these forecasts, UBS analysts also cut their target price on the stock to 1,515p from 1,715p.

In April, Travis Perkins reiterated its guidance for the full-year despite a hit to sales from the ‘Beast from the East’ across February and March which battered the UK and caused decreased footfall across the retail sector.

In mid-morning trading Thursday, Travis Perkins shares were down 2.8% at 1,362.5p.

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