Costly house prices and squeeze on supply makes Travis Perkins a ‘buy’

2nd March 2015

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Given the steep rise in house prices over recent years and the continued shortage of supply brokers are optimistic that shares in homebuilder Travis Perkins could be a winner.

The firm, which joined the FTSE 100 in mid-2013, has moved up in the eyes of brokers over the past three months and the overall analyst consensus now has the shares firmly in ‘buy’ territory.

While its shares are just ahead by 3% over the past year, the last six months have witnessed them firm by 16% and Graham Spooner, investment research analyst at The Share Centre is confident that there are further gains to come.

He said: “As a result of increased house prices and a shortage of housing in the UK, new construction and planning permissions means suppliers to the industry, such as Travis Perkins, are likely to benefit. The company continues to cut costs, leading to an improvement in margins and an update in October reported trading to be in line with expectations.”

Presently the firm is in the second year of a five year strategic plan aimed at optimising space, improving customer options, leveraging scale and improving management of their businesses.

In addition, Spooner asserted that the group’s management also aim to increase returns on capital from 12% to around 16% over the next four years and he believes the trends in its markets remain encouraging.

“As the share price has once again been heading in the right direction, we recommend Travis Perkins as a ‘buy’ for long term, medium risk investors. The company’s debt levels continue to fall and a focus on cost efficiencies and cash generation should lead to future improvements in shareholder returns,” he added.

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