Consumer

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

An Englishman's home is his castle. Travis Perkins, the country's largest building materials supplier, depends on Brits living up to this maxim, even when their home is more "cosy fixer-upper" than resplendent family seat.

Yet Travis doesn't look much of a fortress right now. The stock tumbled more than 7 percent on Wednesday after it warned yearly profit would fall short of expectations and said it would close more than 30 branches, out of about 2,000 sites nationwide.

Since the Brexit vote, the shares have fallen about 27 percent, setting fire to 1.3 billion pounds ($1.6 billion) of investor wealth -- more than the last five years of net profit.

Based on current performance, that looks a little excessive, although you can understand the longer term concerns. Like-for-like group sales did rise 2 percent in the third quarter, with the consumer-facing business expanding by a solid 6 percent year-on-year. Worsening sales in plumbing and heating are partly explained by the withdrawal of government incentives rather than an indication of a consumer business suffering from Brexit fears. 

Pounds in their Pockets
U.K. consumer confidence rebounded after a brief Brexit wobble
Source: Bloomberg

Travis trades on just 11 times estimated earnings, a big discount to the 15 times at rival Wolseley. That said, it operates exclusively in the U.K. -- unlike Wolseley -- so there's no hope of a cushion from non-sterling earnings.

U.K. Exposure
Travis Perkins gets all its sales from the U.K. whereas the majority of Wolseley's are in North America
Source: Bloomberg

And while Travis claims it can't predict how the referendum will affect demand next year, shutting branches and cutting jobs isn't much of a vote of confidence in Britain's post-Brexit prospects.

For now, though, U.K. consumers remain relatively upbeat and housing transactions have held up quite well. That's important because most of Travis's profits come from repair and maintenance rather than new construction. It makes money when Brits move house and call in the builders for a few improvements.

House Swap
U.K. residential property transactions have also held up quite well since the Brexit vote
Source: HMRC
nb. The spike in housing transactions in early 2016 is explained by a rush to beat new taxes on buy-to-let properties

Ever-rising house prices have allowed Brits to withdraw equity from their homes to pay for a new kitchen or conservatory. Meanwhile, savings rates remain low.

But investors are right to worry the good times might not last. Thanks to the pound's recent imitation of an emerging market currency, Travis's trade and retail customers will probably face higher prices next year on products sourced abroad. Meanwhile, housing transactions could tail off if a cooling London infects the rest of the country, or the gilt sell-off leads to higher mortgage rates.

Travis could benefit from any intervention by Theresa May's government to stimulate the housing market -- yet again. But, to borrow a political cliche, its bosses are prudent to try to fix the roof while the sun is (sort of) still shining.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net