Berenberg downgrades Travis Perkins on Brexit uncertainty

Berenberg downgraded builders’ merchant and home improvement retailer Travis Perkins to ‘hold’ from ‘buy’ and slashed the price target to 1,540p from 2,300p pointing to effect of Brexit uncertainty on the housing market.

“While we still believe that Travis has a sound long-term strategy, we are unable to maintain our Buy rating in light of the risks to UK construction activity resulting from the Brexit vote,” the bank said.

It does not expect to see a scenario similar to 2008-2009 but reckoned a moderate contraction in activity was likely, meaning the group will be unable to achieve its mid-term growth ambitions.

“We believe that the recovery in residential construction output that started in late 2009 is likely to be at an end after the vote by the UK to leave the EU,” said Berenberg, pointing out the market was already slowing ahead of the referendum.

Its base case is for a 10% drop in housing starts in 2017 and a 5% contraction in residential renovation.

Berenberg argued that a decline in consumer confidence and house prices could dent home improvement spending, which, unlike in 2009 onwards, does not have the cushion of a steep reduction in mortgage rates to support discretionary spending power.

The bank cut its earnings per share estimates for 2017 and 2018 by around 31% and advised investors to wait for potential political clarity in the autumn, by which time negotiations for the UK’s exit from the EU might have kicked off.

At 1000 BST, Travis Perkins shares were down 4.8% to 1,430p.