Directors’ Deals: Travis Perkins manager works on home improvement

The home improvement boom that began during lockdowns — when people had few other things on which to spend their time and money — seems to be unwinding.

Slower growth in the housing market, higher labour and material costs and lower levels of disposable income led to the Construction Products Association downgrading its growth forecasts for the repair, maintenance, and improvement (RMI) market last month. After a bumper 2021 led to sector growth of more than 20 per cent, private housing RMI is expected to decline by 3 per cent in value this year and 4 per cent next, the CPA said. Annual inflation for building materials was running at 22.5 per cent in May, well ahead of consumer price inflation.

One pair doing their bit for the sector, though, are Robin and Sarah Miller. Robin is general counsel and company secretary of builders’ merchant Travis Perkins and Sarah a person closely associated with him. She sold just over £240,000 worth of shares on June 8 “to fund building works at their home”, a company disclosure said.

The softer outlook for the market has hit Travis Perkins’ shares — they have fallen by 32 per cent so far this year. It’s not alone — roofing and insulation distributor SIG and paving merchant Marshalls have experienced similar declines.

Travis Perkins has continued to trade well — revenue for last year increased by 24 per cent and its adjusted operating profit more than doubled to £353mn. Sales for the first quarter of this year were up 14 per cent year-on-year, partly driven by higher materials prices. 

Analysts are split about its prospects, though. The share price fall has pushed its valuation below five-year averages on several metrics. Peel Hunt says they are now “inexpensive” at 10x forecast earnings and that its strong cash generation gives it options around shareholder returns.

However, the company’s high exposure to the RMI market — from which it derives 70 per cent of its sales — means it faces a “negative earnings risk”, according to Shore Capital.

Calnex boss rings up return from share sale

The money pouring into the cloud computing market and new 5G networks have bolstered the outlook for Calnex Solutions, which makes equipment for testing telecoms and IT infrastructure. 

The Linlithgow-based company’s equipment is used in 68 countries by customers such as BT, China Mobile, Ericsson, Nokia, Intel and IBM. Repeat orders make up about 80 per cent of its revenue.

Calnex was founded by chief executive Tommy Cook in 2006 and brought to market in 2020, raising an initial £6mn in a deal which valued the company at £42mn. Anyone who bought in at that time has made a tidy profit — it has since trebled in value and had a market cap of just below £149mn at the end of last week.

It operates in a sector that is growing at a compound rate of 11.5 per cent a year, according to Frost & Sullivan, but has outperformed this. Revenue for the year to March 31 grew by 23 per cent to £22mn while pre-tax profit widened by 64 per cent to £6mn. 

Post year-end it also made its first acquisition as a public company, buying Stevenage-based iTrinegy for up to £3.5mn in April. It has developed hardware and software to test IT networks run by gaming, financial, technology and military/government customers in the UK and the US. 

House broker Cenkos Securities thinks the deal will add about £1.3mn to this year’s revenue and £200,000 to its bottom line. It is forecasting a 22 per cent increase in revenue and a 21 per cent uplift in earnings per share to 6.3p, meaning the company currently trades at about 27-times forecast earnings. 

Cook has seized the opportunity to cash in some of his chips, selling 1 per cent of the company for almost £1.6mn at the start of the month. He remains the largest shareholder, though, with a stake of just below 20 per cent. MF