Travis Perkins: A Bounce Off The Lows, Not A Turnaround - Hold

The market rallied Travis Perkins shares roughly 15% from their 52-week low of 6.78 to around 7.66 as of August 3, riding the release of half-year results for the six months to June 30, 2026. The headline story circling the results is that price increases and cost discipline lifted first-half profit. The stock move has investors asking whether the building materials distributor has finally turned the corner.

The answer is no - not yet. The profit improvement appears real but narrow. Group sales remain under pressure. The valuation has not reset far enough to offset the operating uncertainty. I rate Travis Perkins a Hold.

What the H1 2026 results show

The company's own headline for the release is more sober than the market reaction suggests: "H1 group sales down; solid Toolstation." That framing matters. Revenue continued to decline, and the profit recovery is a two-segment story where only one side is genuinely improving.

Toolstation - the DIY retail chain, which accounts for roughly 10% of group revenue - keeps pulling ahead. In the first half of 2025, Toolstation UK adjusted operating profit jumped 50% to £21 million, with operating margins expanding to 5.7%, up 180 basis points. The chain has been gaining market share, expanding its store network, and running its supply chain more efficiently. That is the engine of the group's recovery.

Merchanting, which supplies the bulk of the building materials to contractors and developers, is the other story. Adjusted operating profit in Merchanting fell 31% in H1 2025 to £63 million, with margins compressing to 3.4%, down 130 basis points. Direct-to-customer sales - roughly 20% of Merchanting revenue - were down 11%, still feeling the aftershock of a troubled Oracle IT implementation that began in 2024. Yard sales, which represent about 80% of Merchanting, flatlined in H1 and only returned to modest growth in the second quarter.

The competitor narrative credits "price hikes and cost cuts" for lifting profit. The evidence is mixed. In the Q3 2025 trading update (released October 2025), Merchanting price and mix was actually negative - down 0.8% for the quarter and down 0.5% year-to-date. Management has been investing in competitive pricing and promotions to regain market share, not raising prices across the board. The profit improvement is more accurately described as cost discipline and Toolstation strength masking continued Merchanting softness.

The full-year trajectory confirms the split

Zooming out to the full year ended December 2025, the picture stays the same. Group revenue was £4.6 billion, down 0.9%. Adjusted operating profit fell 12.5% to £133 million. Adjusted earnings per share dropped 15.8% to 30.8p. The dividend was cut 17% to 12.0p per share.

But there were signs of late-year stabilization. Like-for-like group revenue grew 0.3% for the full year, with H2 benefiting from a sharper competitive proposition. Toolstation UK adjusted operating profit for the full year rose 29% to £44 million. Management reduced overheads, restructured central and regional roles, and successfully mitigated cost inflation and higher employer national insurance contributions.

Earnings at Travis Perkins have been declining at an average annual rate of roughly 41.5% over recent years, while revenue has grown at a meager 1.7% annually. That divergence - flat top line, collapsing margins - is what has driven the stock from its 2021 peak of 22.85p to the current range near 766p, a decline of roughly 66%.

The balance sheet is the one genuinely positive development

This is where management has done the most convincing work. Net debt before leases was reduced to £103 million in H1 2025 from £191 million a year earlier, a £88 million cut in six months. For the full year 2025, the company sat on net cash before leases of £1 million, supported by a £136 million working capital inflow, the sale of Staircraft for £24 million, and disciplined capital expenditure. Total liquidity - cash holdings of £427 million plus £390 million in undrawn committed facilities - exceeds £800 million. The £250 million bond was refinanced with investment-grade US private placement notes, and there are no significant refinancing requirements until 2028.

Fitch Ratings affirmed Travis Perkins at BB+/Stable in June 2026, expecting year-end cash balances to remain in the £380 million to £420 million range through 2029. The leverage ratio (net debt to adjusted EBITDA) improved to 2.1x for FY2025 from 2.5x. Management's stated target is 1.5x to 2.0x, and they are on a credible path to get there.

The balance sheet story matters because it removes the fear of distress. Travis Perkins is not running out of cash. But a strong balance sheet alone does not make a stock a buy - the business still needs to generate profit.

Valuation: the stock is not cheap

This is where the 15% bounce from the lows stops looking like an opportunity and starts looking like a relief rally. At 766p, Travis Perkins trades at roughly 25 times FY2025 adjusted earnings of 30.8p. That multiple looks attractive on a static basis, but earnings are not static - they are declining.

Analyst price targets are below the current share price. JPMorgan recently cut its target to 630p and maintains an Overweight rating. Morgan Stanley trimmed its target to 685p from 740p, with an Equal Weight rating. Both targets are meaningfully below 766p. The Simply Wall St fair value estimate, updated in June 2026, was £6.55 - also below the current price.

In peer context, US-listed Builders FirstSource, a comparable building materials distributor, trades at roughly 15 times earnings with a market cap of $7.1 billion. Travis Perkins at 25 times declining earnings, with a market cap of roughly $1.6 billion, is not trading at a discount relative to its operating trajectory.

The dividend yield, which is often cited as support for Travis Perkins, is also less compelling than it sounds. At 12.0p per share on a 766p price, the yield is around 1.6%. That is not income-compelling, and it is only 1.6% after the dividend was cut 17% last year. The payout is affordable given the cash position, but there is no yield cushion if the stock drifts lower.

The catalyst clock

The most tangible catalyst is the new CEO, Gavin Slark, who joined in January 2026. Slark brings deep sector experience from SIG plc, Grafton Group, and BSS Group. He has spoken about restoring the group's performance and creating shareholder value over the medium term, and the company is planning to develop and communicate a formal strategy. Specialist merchants have been consolidated under a single managing director to improve focus.

But a new CEO with a fresh strategy is not a near-term earnings catalyst. The next concrete proof point is the Q3 2026 trading update, expected around October or November, which will show whether H2 2026 continues the stabilization trend seen in H2 2025. Beyond that, the FY2026 full-year results in March 2027 will be the first full-year test of Slark's stewardship.

Risks

Three risks are live:

• Merchanting demand remains weak. UK construction activity has been subdued, and Merchanting's direct-to-customer channel - already the weaker side of the business - is still recovering from the Oracle implementation. If the direct sales fix does not stick, Merchanting could be a drag for years, not months.
• Competitive intensity. Management has explicitly acknowledged that the market is "highly competitive" and that they are investing in pricing and promotions to regain share. That means margins in Merchanting could stay under pressure even if volumes recover modestly.
• Toolstation Benelux continues to lose money. The Benelux operation lost £6 million in H1 2025. Store like-for-like sales grew 6%, but a website upgrade disrupted online sales by 22%. The segment needs to prove it can grow without bleeding cash.

The rating

Travis Perkins is a company with a strong balance sheet, a genuinely improving retail division, and a new CEO who has the sector credentials to earn optimism. But it is also a company whose earnings have been collapsing, whose largest revenue segment is still struggling, and whose stock is trading above analyst targets. The 15% bounce from recent lows is a reaction to cost discipline and Toolstation strength, not a validation of a broader turnaround.

At 766p and roughly 25 times declining earnings, the valuation has not reset far enough to justify a Buy. The risk/reward is tilted toward caution until Merchanting shows sustained volume recovery and the group delivers at least one full year of profit growth under the new leadership.

Rating: Hold. Reconsider for a Buy if H2 2026 shows Merchanting like-for-like sales growth above 2% and group profit stabilizes, or if the stock falls below 600p, which would bring valuation closer to the level where the balance sheet strength and Toolstation momentum provide adequate downside protection.