THE INVESTMENT COLUMN: Take profits at DIY group Travis
Thursday 03 February 2005
Buying Wickes is a decent next step for a company that was close to meeting its target of winning a 20 per cent share of the builders' merchant market and on an operational level, you wouldn't bet against it being a success. Travis has an awesome reputation for integrating its acquisitions, doubling earnings per share in the last five years by snapping up smaller players and squeezing the benefits that come from being able to buy supplies such as timber, bricks, tools and everything else in bulk. It has promised pounds 35m in annual savings from the Wickes deal, mostly in purchasing.
Yet the deal has increased the risk profile of Travis shares. The company has previously fought shy of the DIY enthusiast, who takes up more time and spends less. Different management skills are required. And the deal comes just at the moment that Frank McKay, the chief executive for five years, heads into retirement. Geoff Cooper, his replacement, was respected as a director of Alliance UniChem but has no form in this industry.
Then there are the risks attached to the DIY market Travis is entering. The proliferation of Changing Rooms-style programmes on TV tempts one to believe this market will grow forever, but it is highly correlated to the housing market. If stagnant house prices mean fewer people moving home, then DIY retailers could struggle. As a relatively small player, Wickes will suffer if its rivals launch a price war to compensate.
And finally there is the question of the share price, which has sky-rocketed since the Wickes deal was unveiled. It can't all be justified by the extra earnings that Wickes will bring in, and the stock has now passed all but one analyst's target price. This looks a good point for shareholders to lock in profits.
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