August 29, 2013 6:56 pm

Travis Perkins gains as pure UK play

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Travis Perkins was among the London market gainers yesterday in a session otherwise dominated by Vodafone disposal hopes.

Travis Perkins advanced 2.5 per cent to £15.98 after Citigroup recommended the builders’ merchant as a way to play the housing market.

“It is a pure UK play and should benefit from rising housing transactions and positive momentum in UK GDP trends,” said the broker. “It is one of the best managed companies under our coverage, will benefit from volume recovery and has a strong balance sheet.”

Citi reckoned Travis Perkins would refresh its strategy at the end of the year, when longstanding chief executive Geoff Cooper steps down to be replaced by his deputy John Carter.

“This will likely focus on how the group intends to drive growth and returns higher and use its balance sheet more efficiently,” Citi said. It forecast net debt to fall to less than 0.5 times operating earnings next year, from 1.5 times in 2011.

“We think the current price of 13.5 times earnings looks relatively attractive given the balance sheet capacity and potential for earnings recovery given the positive trends expected in the UK,” said the broker.

The wider market rallied for the first day in three, with the FTSE 100 climbing 52.99 points or 0.8 per cent to 6,483.05.

Vodafone added 29 points to the index after it confirmed talks were back on to sell its minority stake in Verizon Wireless, with a potential agreement at a price of around $130bn said to be coming as soon as next week. Vodafone climbed to its highest since 2002, up 8.2 per cent to 204.8p, on more than six times the average daily volume.

Engineer Melrose gained 6.1 per cent to 301.8p after it said first-half sales more than doubled. The lack of a cash return to shareholders suggested Melrose may be close to finalising the sale of Crosby, its £600m-valued US lifting equipment business, dealers said.

Better than expected interim results lifted WPP by 4.2 per cent to £12.27. The advertising agency raised full-year sales growth guidance after July trends strengthened.

Leading the fallers, Serco dropped 11.2 per cent to 538.5p after the Ministry of Justice said it had uncovered “fraudulent behaviour” by Serco staff running its £285m contract to operate prison vans.

“At best the review over the next three months is likely to entail greater ongoing costs in terms of governance, systems and training and likely to lead to greater transparency with the customer. This, in our view, is likely to lead to further margin pressure,” said RBC analyst Andrew Brooke. “At worst, other issues may be found as contracts are reviewed and Serco is not allowed to bid for future government work. Around 50 per cent of current revenues are UK government, with around half of that central government.”

Without a sharp recovery, Serco looked certain to lose its place in next month’s FTSE 100 quarterly index review.

Miner ENRC , up 0.6 per cent to 228.9p, and oilfield engineer John Wood Group , up 1.3 per cent to 820.5p, were also in the FTSE relegation zone based on yesterday’s prices. The most likely replacements were Coca-Cola HBC , up 0.8 per cent to £17.54, retailer Sports Direct , ahead 1.5 per cent to 672.5p, and packaging maker Mondi , 0.9 per cent firmer at 997.5p, according to analysts.

Pearson , the education group and Financial Times publisher, slipped 2.7 per cent to £12.80 on “sell” advice from Deutsche Bank.

Salamander Energy rallied 10.1 per cent to 132.1p after it maintained 2013 production guidance with interim results, and management emphasised a low cost, high impact exploration programme for the second half.

Steel maker Evraz bounced 7.5 per cent to 134p as falling raw materials costs meant its interim earnings beat expectations. The beat overshadowed news that net debt had risen to $7bn, or nearly four times operating earnings.

Doorstep lender International Personal Finance took on 2.1 per cent to 594.5p after Panmure Gordon put a 700p target on the stock. IPF’s Mexican market offers huge potential while increased capital generation from further expansion offers the scope for cash returns, it said.

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