Travis Perkins slashes profit expectations on housing sector pressure
Travis Perkins lowers earnings expectations as pressure on the UK housing sector continues to mount
- Travis Perkins expects to post an adjusted operating profit of approximately £240 million for 2023
- The company said it had not predicted the “expected easing” of market conditions
- UK homeowners are increasingly pressured by mortgage repayments
Travis Perkins has cut his annual profit forecast significantly as pressure on the UK housing sector continues to mount.
Adjusted operating profit at the construction trader is now expected to be around £240m for 2023, down from previous forecasts of around £272m and last year’s total of £295m.
The Northampton-based company said an ‘anticipated easing’ of conditions in the sector in the second quarter had failed to materialise, despite a ‘resilient’ performance in the preceding three months.
Outlook: Travis Perkins now expects an adjusted operating profit of around £240m for 2023
Rising interest rates and declining consumer confidence due to stronger-than-expected inflation have affected demand for new home construction and repair and renovation projects, the group told investors.
Following the trade update, Travis Perkins Stocks were the biggest fallers on the FTSE 350 Index, falling 5.9 percent to 815.8p.
UK homeowners are seeing their budgets increasingly squeezed by mortgage repayments as many fixed rate deals expire.
The average two-year fixed-rate mortgage agreement has risen from just 2.65 percent in March 2022 to 5.92 percent this month, according to data provider Moneyfacts.
That’s less than the 6.7 per cent reached last October following the controversial mini-budget, but still means many property owners pay hundreds – or even thousands – of extra interest payments to lenders each month.
Figures released today by industry association UK Finance show that home loan borrowers in the UK spend on average one-fifth of their gross income on mortgage payments, the largest since 2008.
Analysts believe that mortgage rates are likely to continue to rise given that the Bank of England is expected to raise key rates again to try and dampen inflation, which currently stands at 8.7 per cent in the UK.
Russ Mould, director of investment at AJ Bell, said: “For many, mortgage payments have become a punishment if they’ve rolled off a fixed-rate deal in the past six months, and others are keeping a close eye on their pennies for fear rates will rise. . won’t be back soon.
“Yes, there remains a housing shortage in the UK, but more important to Travis Perkins now is the consumer’s ability and willingness to spend.”
Despite the poor economic situation, Travis Perkins noted that its Toolstation business continued to perform in line with forecasts, while trading in other end markets, including industrial, commercial and infrastructure, was strong.
In addition, it believes it is ‘well placed’ to take advantage of longer-term systemic factors, such as the need to adjust the UK’s housing stock, which is among the oldest and least energy efficient in Western Europe.