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UBS upgrades Ferguson, downgrades Travis Perkins

By Michele Maatouk

Date: Wednesday 22 Jan 2020

UBS upgrades Ferguson, downgrades Travis Perkins

(Sharecast News) - UBS upgraded its stance on Ferguson on Wednesday but downgraded Travis Perkins, as it took a look at the European building materials sector.
"After a strong re-rating in 2019, we are somewhat more selective but we see some opportunities in the sector," UBS said.

The bank upgraded plumbing and heating company Ferguson - formerly Wolseley - to 'buy' from 'neutral' and boosted the price target to 8,075p from 6,600p on margin growth and some further multiple re-rating potential.

"We recognise a part of the re-rating story has played out, with the shares trading on 17x price-to-earnings versus a trough of 12x in Dec-18. The discount to US peers has narrowed to circa 15% from a peak of 35%. However, we think the probability of an eventual re-listing in the US is relatively high and we expect the board to recommend a dual listing as a first step."

It downgraded its rating on builders' merchant Travis Perkins to 'sell' from 'neutral' but lifted the price target to 1,400p from 1,380p after the recent re-rating. UBS said the shares look expensive and the market is getting "over-optimistic" about a UK recovery.

"Shares have re-rated from a trough of 10x to 14.5x P/E (long-term average around 11.5x and peak multiple around 16x) which we think exposes shareholder to downside, in particular ahead of potentially earning dilutive streamlining of the portfolio," UBS said.

Irish building materials company CRH remained its 'top pick', rated at 'buy' with a 3,300p price target.

At 1240 GMT, Ferguson shares were up 0.1% at 7,110p, while Travis Perkins was down 1.2% at 1,619.50p and CRH shares were 0.7% lower at 2,926p.

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