LONDON (ShareCast) - (Sharecast News) - Jefferies upped its stance on shares of builders' merchant Travis Perkins on Friday to 'buy' from 'hold' and lifted the price target to 1,439p from 1,206p, as it pointed to the potential for growth at Toolstation.
It said repair, maintenance and improvement has been the UK construction market with the strongest pick-up through Covid-19, which it sees as sustainable, at least for the mid-term.

Jefferies said real-time data shows demand to move home is now ahead of pre-pandemic levels, suggesting scope for higher housing transactions, a key lead indicator for RMI.

As people spend more time at home following the Covid-19 outbreak, it may also drive greater desire to invest in homes. With Travis Perkins deriving around 70% of sales from RMI, it is one of the best-placed stocks to benefit from this, the bank said.

"Travis Perkins' share price has lagged peers, despite being the stock most clearly exposed to this trend," Jefferies said. "New proprietary mapping work suggests significant long-term growth at Toolstation, a standout performer through the pandemic. We think valuing this division alone could double the upside implied by our price target."

Jefferies noted that Toolstation has been the best-performing division for Travis Perkins through the pandemic, and following the Wickes demerger and Plumbing & Heating disposal, it's set to be one of only two divisions in a much simpler group.

"Our proprietary mapping suggests there could be sufficient catchments to more than double the current number of Toolstation branches in the UK. Modelling the longer-term potential from this network expansion and its maturity suggests Toolstation could account for around 1/3 of Travis Perkins' profit in ten years from circa 5%-7% currently."

At 1000 BST, the shares were up 1.9% at 1,131.50p.

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