Canaccord downgrades Travis Perkins, sees short-term pressure on cash-flows

Analysts at Canaccord Genuity downgraded their recommendation on shares of Travis Perkins and trimmed their target price, flagging the multiple risks to the company's margins and cash-flows over the next 12 to 18 months.

Nevertheless, the Canadian broker continued to believe the builders merchant would be a winner in the industry over the medium-term.

Canaccord's Aynsley Lammin and Matthew Walker pointed to the 'challenging' 2017 macro outlook with weak volumes and significant cost inflation as well as continuing challenges in the firm's Plumbing & Heating arm.

Hence the pressures the two analysts spied on the horizon which would bear down on the firm's margins and cash-flows over the next 12-18 months.

Indeed, Travis Perkin's own management had admitted as much recently, taking what the broker dubbed as a "sensibly cautious view" on 2017.

In turn, Lammin and Walker had reduced their estimates mainly on the back of a weaker forecast for Plumbing and Heating.

On a more positive note, they told clients: "We continue to believe that Travis will be a winner in the industry and should deliver a significantly higher margin, cash return and ROCE over the medium term.

"Despite seeing potential medium-term value in the shares, we now expect more of a delay before seeing the financial benefits of all the ongoing investments and action being taken."

The broker thus downgraded the shares from a 'Buy' to a 'Hold' and lowered its target price from 1,590p to 1,540p.