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Broker tips: Travis Perkins, XP Power

Analysts at Canaccord Genuity raised their target price on Travis Perkins from 1,450.0p to 1,525.0p on Wednesday as a result of the group “reigniting its simplification plans”.
Canaccord stated that Travis Perkins had enjoyed “a strong bounce back” in the second half of 2020, with its Toolstation and Wickes businesses seeing “particularly good growth”.

The analyst also noted Travis Perkins had done “an impressive job” of reducing leverage during the year, something then added was “a real worry” last spring.

Canaccord, which reiterated its ‘hold’ rating on the stock, said the key news in Travis Perkins’ most recent update was in relation to the strategic initiatives and the recommencement of its de-merger of Wickes, with management continuing to focus on improving its core business and simplifying the group.

“The de-merger of Wickes is a big step in this direction and being able to dispose of the plumbing and heating business for an acceptable price would leave the group in good shape,” said Canaccord.

Analysts at Berenberg raised their target price on XP Power from 5,500.0p to 5,945.0p on Wednesday following the group’s “impressive” 2020 performance.

Berenberg highlighted that XP Power had delivered organic revenue growth of 17% year-on-year, operating margins of 19.7%, up 220bp, strong cash generation, 98% conversion, and adjusted pre-tax profits 4% ahead of market expectations.

While the analysts acknowledged that £15.0m-20.0m of Covid-19 related healthcare orders were not expected to repeat in 2021, they said the company was still well placed to benefit from a cyclical recovery in industrial technology alongside continued momentum in semiconductors.

“We believe XPP deserves credit for its execution through a difficult period and we continue to see significant short and long-term tailwinds for the company,” said Berenberg, which reiterated its ‘buy’ rating on the stock.

The German bank added that in the medium to long term, it believes earnings can double in five years through structural growth in XP’s end-markets and market share gains.

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