Travis Perkins boosted by double-upgrade at BofA Merrill Lynch

Shares in builders' merchant Travis Perkins got a boost on Tuesday as Bank of America Merrill Lynch double-upgraded it to 'buy' from 'underperform' and hiked its price target to 1,700p from 1,000p, pointing to upside from an improving volume backdrop, asset disposals and a new chief executive.

"We believe that the combination of a stabilising backdrop for UK renovation activity, low interest rates for longer, the planned simplification of the business through asset disposals and the new CEO starting this summer could lead to a re-rating of the stock," Merrill said.

The bank upped its 2019-20 earnings per share estimates by 6% to 7% and now stands around 4% above consensus.

It reckoned that the upcoming disposal of the plumbing and heating business and the medium-term strategic reflections around Wickes could be "transformational" for the group and lead to higher returns on capital.

"While the UK macroeconomic backdrop is likely to remain uncertain for several months, we believe the worst case scenario is now less likely to materialise and don’t see signs of incremental deterioration," it said.

It noted signs of stabilisation in residential transactions in recent months, which combined with persistently low interest rates and more stable consumer confidence could lead to a more benign outlook for merchanting demand.

"In the general uncertain climate driven by Brexit headlines, we do not expect an acceleration of renovation activity but believe that Travis Perkins is likely to make the most of a more stable market, with potential market shares gains in merchanting and Toolstation."

At 1440 BST, the shares were up 2.3% at 1,459.57p.