Why Investors Are Losing Confidence In Travis Perkins plc (TPK)

Shares in Travis Parkins plc (LON:TPK), building merchant and home improvement products retailer, were hit hard as profits-before-tax fell more than 65% in the year to December 2016. The company had hardly recovered from a steep-drop in market capitalization post-Brexit. Yesterday’s subdued results—comparable sales growth slowed down to 2.7% from 3.8% a year ago—dealt another blow to the stock price. The weak-link was plumbing and heating division, that contributes nearly 25% to the group’s revenue. Additionally, TPK warned that further pressure on growth going forward can be seen in case higher-inflation impacts the consumer demand. Investors’ reaction, evident from a more than 7% drop this Thursday, indicates concerns about its future profitability as the company’s net income dropped from a-year-ago’s £167.7 million to £12.7 million. While strong cash generation allowed TPK to boost dividends slightly – TPK has raised dividends consistently over the past seven years, the investors may find the valuation too rich now that the company is indicating economic headwinds.

Capita PLC (LON:CPI) earnings trigger a sell-off

Shares of the support services provider are down almost 50% over the past year, including a steep decline this Thursday after the company reported pre-tax-earnings of £475 million, way below its recently revised-down guidance of £515 million. Weak trading conditions across divisions amid tussle with clients such as The Co-operative bank and penalties for delays has now prompted the company to kick-off a turnaround strategy to achieve a leaner business model under a new leadership. The company’s balance sheet is stretched and valuations are rich, no wonder the stock is dropping like a rock. However, analysts project a rebound in earnings that would stabilize post-2018, but the high-yielder will have to come up with a strong performance and revival plan to regain investors’ confidence.