Company in the news: Travis Perkins

A combination of good management and shrewd purchases has made Travis Perkins the UK's top builders' merchant. It trades under 17 different brands, including Travis Perkins, BSS and Wickes.

It aims to be a one-stop shop for construction and home-improvement products. Its fortunes have mirrored the boom and bust of the UK construction sector: recent years have been a struggle as construction activity has slumped, while households have spent less on DIY.

Now things are looking up.

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The shares have surged by over 70% in the last year as the market has bet on a rapid profit recovery. A year ago, its shares traded at around ten times forecast earnings. Today, you have to pay around 17 times. You can see why.

Chancellor George Osborne's plan to stoke up UK housing has sent construction-related stocks soaring. A building boom would be great news for Travis Perkins' building supplies business. There are already signs of demand picking up. Since April, sales across most of its businesses have seen big increases.

But it's not all about new building work. Travis Perkins relies on repairs, maintenance and improvement projects for a lot of its income. It also owns BSS, which is big in the plumbing and heating supplies business.

Plenty of building projects have been shelved over the last few years. If customers become more confident, then Travis Perkins could see a broad-based recovery in demand for its products.

If the company is at the start of a prolonged upswing in profits, then buying the shares today could still pay off. City analysts expect 15% earnings growth in 2014. The half-year dividend was raised by 25%, and the proportion of profits paid out looks set to grow. An ongoing financial review could lead to a special payout later this year.

I question the logic behind the Help to Buy scheme, but the experience of the housebuilders suggests that Travis Perkins' shares could still go up a long way from here.

Verdict: speculative buy