City confidence in merchant performance wavers
Published: 28 July, 2009
...but merchants remain bullish.
LONDON: Wolseley and Travis Perkins' stock rose 8% and 10% ahead of updates this week amid positive results from peer businesses. But City analysts caution against over-optimism of rising confidence in merchant shares.
Paul Checketts, analyst at Oriel Securities, said: "I don't see builders' merchants fully recovering to any semblance of where they previously stood. The market in totality has contracted and it remains very fragile.
"It's probably not as bad as it was earlier in the year, but it's a big leap of faith to imagine that the only way is up."
Howard Seymour at Numis said larger listed companies have benefited from regional rivals going out of business, but that stage may now be over. "The small local players that are left are the stronger ones and they're doing better because people are propping them up," he said.
But merchants are confident that they are through the worst of the recession. Pierre Andre de Chalendar, chief executive of St Gobain, Jewson's parent company, said the group had "reached the bottom point" in most markets.
Last week, Builders' Merchants News reported sales at Kingfisher's B&Q DIY chain beat analysts' expectations by more than 4%.
Also last week, Builders' Merchants News reported shares in kitchen retailer Galiform, rose 20% after its interim results beat expectations. BSS Group also saw its share price up marginally despite its realistic assessment of grim trading conditions.
The Financial Times said today that Wolseley and Galiform are trading at about three times their levels at the end of December, while Travis Perkins has doubled in price. Of the UK-listed merchants, only BSS and SIG are broadly level and below their year-end prices, the newspaper said.
The FT points to recent data offering tentative reasons for confidence and said: 'Housing starts, a driver of activity for most builders' merchants, are showing signs of picking up from the slump they entered in the winter and spring'.