Travis Perkins slashes profit expectations on housing sector pressure

Travis Perkins has significantly downgraded its annual earnings outlook as pressure continues to build on Britain’s housing sector. 

Adjusted operating profits at the builders’ merchant are now expected to be about £240million for 2023, down from previous forecasts of around £272million and last year’s total of £295million.

The Northampton-based company said an ‘anticipated easing’ of industry conditions during the second quarter had failed to matererialise, despite a ‘resilient’ performance in the prior three months.

Outlook: Travis Perkins now expects adjusted operating profits of about £240million for 2023

Rising interest rates and slackening consumer confidence caused by stronger-than-expected inflation have impacted demand for new housing construction, as well as repair and refurbishment projects, the group told invesotrs.

Following the trading update, Travis Perkins shares were the biggest faller on the FTSE 350 Index, with a 5.9 per cent drop to 815.8p.

British homeowners are seeing their budgets increasingly squeezed by mortgage repayments as many fixed-rate deals come to an end.

An average two-year fixed-rate mortgage deal has jumped from just 2.65 per cent in March 2022 to 5.92 per cent this month, according to data provider Moneyfacts.

That is below the 6.7 per cent reached last October following the controversial mini-budget but still means many property owners are paying hundreds – or even thousands – of pounds in extra interest payments each month to lenders.

Figures revealed today by trade association UK Finance showed that UK home loan borrowers are devoting a fifth of their gross income on average towards mortgage payments, the largest since 2008.

Analysts believe mortgage rates are likely to continue edging up given that the Bank of England is expected to hike the base rate again to try and dampen inflation, which currently stands at 8.7 per cent in the UK.

Russ Mould, investment director at AJ Bell, said: ‘For many, mortgage payments have become punishing if they’ve rolled off a fixed rate deal in the past six months or so, and others are watching their pennies closely for fear that rates aren’t going to fall back any time soon.

‘Yes, there continues to be a shortage of housing in the UK, but more important to Travis Perkins now is the ability and willingness for the consumer to spend money.’

Despite the poor economic backdrop, Travis Perkins noted that its Toolstation arm continued to perform in line with forecasts whilst trading was strong among other end markets, including industrial, commercial, and infrastructure. 

In addition, it believes it is ‘well placed’ to benefit from longer-term systemic factors, such as the need to retrofit the UK’s housing stock, which is some of the oldest and least energy efficient in Western Europe. 

This post first appeared on Dailymail.co.uk