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Questor share tip: Topps Tiles profits soar

The largest tiling company in the UK expects improved full year profits, says Questor.

Underlying pre-tax profits almost doubled, to £8m, in the first 29 weeks ended March.
Underlying pre-tax profits almost doubled, to £8m, in the first 29 weeks ended March.

Topps Tiles
137.75p+0.5
Questor says BUY

WHEN British people buy a new house there is nothing they love more than ripping out the bathroom. The ink barely has time to dry on the contracts before a frenzy of DIY hubris sees the perfectly serviceable water closet consigned to the skip. So, as the housing market recovers, this is great news for the nation’s largest tile supplier.

Topps Tiles (TPT) yesterday reported a strong recovery in sales. Chief executive Matthew Williams said: “We now expect a significantly improved profit performance year on year.”

Mr Williams slightly tempered the exuberance by warning that bonuses to sales staff will see costs rise, but overall it was a confident update.

The tiling group reported like-for-like revenues up about 10pc, to £97.5m, for the 26 weeks ended March 29. Underlying pre-tax profits almost doubled, to £8m, in the same period, up from £4.7m, at the same stage last year.

Topps Tiles has given a fairly wide range for pre-tax profits between £15.4m to £19.3m for the full year ended September. General consensus is for pre-tax profits around the £16.4m mark, giving 6.5p in earnings per share. Topps is expected to achieve revenue of £190m for the year ended September.

Profit forecasts from retailers are always tricky to rely on as customers are fickle; just because they spend on home improvements one month doesn’t mean it will be repeated.

As an example of where profits could go if sales continute to rise, in 2007, the company made pre-tax profits of £37.8m, on revenues of £207.9m that are only slightly higher than today.

Help to Buy is a well-established support mechanism for the housing market and the signs are encouraging for the tiling business. Topps Tiles made no specific mention on profit margins or costs in this update, so Questor assumes these remained stable. In the full-year update, gross margin edged up to 60.2pc, and the group had a leading UK market share that increased by 1.5pc to 28.5pc.

The progress hasn’t escaped the notice of other professional value investors. The Capital Group more than doubled its stake in Topps Tiles in early December.

The shares have jumped 30pc in the four months since Questor tipped them (106.5p, November 27) and we retain that advice. Buy.