Today’s Q3 trading update from Travis Perkins looked solid enough but there are still concerns about profitability.

Despite the challenging market and the squeeze on household incomes, group like-for-like sales rose 3.5% against a weak 2016 comparison. But it must be noted that inflation is behind the rise, not volume growth. Sales price inflation across in the third quarter was 3.9% reflecting the pass-through of cost price inflation. When you factor this in the sales growth doesn’t look as impressive as the headline number suggests. Higher commodity prices and the fall in sterling are pushing up input prices and this one reason for some of the concern around profitability.

This represents acceleration from first-half revenue growth of 2.7%, which equated to adjusted operating profit 2.1% lower at £190m, which it said was largely due to the challenging Plumbing & Heating market as well as some recent investments.

So investors should be pleased to see the improvement in Plumbing & Heating. Last year this looked in bad shape as revenues declined 0.9% and profits slipped more than 15%. In March it cautioned that there was a lot of work to do on this front. Certainly the division has under-performed in recent years, with falling sales and profitability but it is evident the transformation plan is working.

After stripping out more than 30-odd stores, Plumbing & Heating sales rose 5.4% in Q3 and are up 0.9% on this basis YTD. Total sales so far this year are down 0.5% in this division – early days and work to do still.

Total group sales are up 3.4% YTD, or 3.3% LFL. This compares with 2016’s 4.6% increase in revenues, or 2.7% LFL. Some progress on LFL but slower overall growth reflecting moves to improve profitability. A tentatively cautious outlook from the firm points to it being on track to achieve full-year expectations.

Shares opened more than 3% higher reflecting increased optimism over sales growth following softness over the summer that saw the stock decline more than 10% since May.

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