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Broker tips: Travis Perkins, Treatt

By Iain Gilbert

Date: Thursday 16 May 2024

Broker tips: Travis Perkins, Treatt

(Sharecast News) - Barclays has raised its rating on builders merchant Travis Perkins from 'equal weight' to 'overweight', saying that the stock is an "undervalued UK recovery play".
Despite optimistic earnings forecasts, Travis Perkins shares have fallen by nearly 50% since the start of 2022, dropping from around the 1,500.0p mark to just 831.0p by Wednesday's close, heavily underperforming other names exposed to the UK residential sectors, according to Barclays.

"Travis has heavily underperformed other resi-exposed stocks since 2022. We estimate that under a full recovery, earnings could almost triple vs 2024E and under a bull case we could see +25% consensus upgrades by 2026," Barclays said.

"We see scope for meaningful improvement to medium cash conversion and, in turn, perception of quality of earnings."

The bank also hiked its target price for the shares from 760.0p to 1,050.0p.

Analysts at Berenberg cut their target price on food ingredients manufacturer Treatt from 700.0p to 580.0p on Thursday as its "slow start" to FY24 resulted in a downgrade to full-year revenue growth guidance.

Berenberg noted that despite the downgrade to guidance, a "significant acceleration" in revenue growth was required in H2 to achieve both consensus and guidance estimates.

"Concerningly, revenue in its new markets segment declined year-on-year in H124, which comprises both coffee and China," said Berenberg.

However, the German bank noted that even with the decline in new markets revenue recorded in H1, it continues to expect that Treatt can exploit the opportunities in coffee and China to deliver an acceleration in growth across the medium-term.

Berenberg, which reiterated its 'buy' rating on the stock, added that Treatt trades on a roughly 19x 12-month forward price-to-earnings ratio, which was more than one standard deviation below its trailing five-year historical average.

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