NORTHAMPTON: City analysts expect the Office of Fair Trading to rubber-stamp the BSS acquisition soon.
The purchase of BSS is considered a sound deal likely to produce cost synergies of around £25m a year. Although uncertainty remains over how well demand will hold up in the face of spending cutbacks, the merged business will leapfrog all its competitors to become the UK's leading plumbing and heating trade/retail business, controlling around 20% of the market.
Shore Capital rated the shares a 'buy' and said: "The risk of public sector cuts has been well documented, and we estimate Travis Perkins has an exposure of around 10% of sales.
"The enlarged group will be grabbing a significantly larger slice of the market, and a sizeable chunk of sales are made in the more defensive markets such as repairs and maintenance rather than new construction. What's more, much of the spending on maintenance is non-discretionary, such as boilers and radiators.
"For 2011, we are forecasting adjusted pre-tax profits of £287m and EPS of 85.6p, rising to £317m and 94.3p in 2012."
Numis also rates Travis a buy and said: "BSS can boast the best growth profile in the merchanting sub-sector, while Travis Perkins has the second best. As well as the obvious attractions arising from this, putting the two together will give BSS greater exposure to repair and maintenance related plumbing and heating work, while giving increased scale to Travis Perkins' existing operations.
"In addition, Travis Perkins' management has a record of over-achieving on cost synergies, and the £25m projected annual cost savings by 2013 could be achieved a year early. Assuming there are no hitches to the acquisition, we are moving our share price target up to 1,050p."
