I think the choppy seas of Brexit have been holding back the FTSE 250, with investors heading for the safer waters of the FTSE 100. But the tide could be turning, with the mid-cap index starting to pull ahead of its bigger sibling since the general election.
I last looked at building supplier Travis Perkins (LSE: TPK) in October. I concluded that, in the event of a post-Brexit recession, I could see the whole construction materials sector suffering. And I decided to wait and see.
At the time, there was still a chance Boris could dump us out before Christmas with no deal, but things have improved. I still expect we’ll have a tough economic spell, but I see the future for construction as brighter now.
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Trading
Since I wrote, the Travis Perkins share price has picked up too. The company owns the Wickes brand, among others, and a Q4 Wickes update Wednesday looked impressive.
Total sales in the quarter rose by 3.4%, with like-for-like sales up 4.5%. For the 2019 year in total, sales jumped 7.7%, with like-for-likes up 8.7%.
What that means for the future remains to be seen, with Wickes set to be demerged. That should happen in the second quarter of 2020, and it might seem bad to lose such a quality business. But demerging a retail division and focusing on its trade businesses seems like a sensible long-term approach.
Travis Perkins saw sales growth of 3.8% in the third quarter, with 3.6% year-to-date growth (and 4.7% like-for-like). I think that sets it up for a solid full-year, with results due on 3 March.
We’re looking at P/E valuations of around 14, with dividend yields at 3% or so. That’s not a screaming bargain, but I see fair value for a company with a solid long-term future.
Immune
My second pick is Sanne Group (LSE: SNN) which, I think, is essentially immune to Brexit. In July last year, my colleague Andy Ross rather prophetically saw Sanne as a better growth prospect than Sirius Minerals. Even putting that comparison aside, I think he got it right about Sanne.
The company bills itself as “a leading global provider of alternative assets and corporate business services.” And it’s a business that’s been generating impressive earnings growth in the past five years.
The year just ended December is expected to have seen a pause in that growth. But it looks set to resume quickly, with analysts predicting 14% rises in both 2020 and 2021.
Momentum
The 2019 year might even come in better than expected, as a Wednesday update tells us to expect a 16% rise in revenue. New business wins are around £24.5m, bang on 2018’s figure, and there’s “good momentum continuing into 2020 with some significant wins falling into the New Year.“
Cash conversion is strong, expected to exceed 100%, and that’s good news for dividends. Yields are modest at around 2.3%, but they’re strongly progressive. According to forecasts, Sanne will have nearly doubled its dividends in just four years since 2015.
P/E multiples are in the low twenties, but dropping quite quickly. I rate Sanne a long-term growth buy.
