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  • Writer's pictureMark Watson-Mitchell

Topps Tiles – broker increases estimates by 7% after record first half revenues

Topps Tiles – broker increases estimates by 7% after record first half revenues and looks for shares to double


This group is the UK’s premier tile specialist.


Topps Tiles (LON:TPT) is a market leading, omni channel domestic retailer serving homeowners, trade customers and contractors.


It is now celebrating its 60 years of trading, supplying tiles for everyone since 1963.


After announcing its first half results for the 26 weeks ended 1st April, it is now showing a return to profitable growth, especially as its second half year is the stronger trading period.


The £101m capitalised group, which like UK industry generally, was suffering from supply chain and recruitment pressures, however they now seem to be easing, with product availability and movement of goods normalised.


Adjusted operating expenses saw an increase of 7.4%, due to inflation, which were partially offset with store closure cost reductions.


The adjusted pre-tax profit was down as a result of inflation and some one-offs, however the group is confident of a materially more profitable H2 and in hitting full year expectations.


Group revenues were up 9.3% at £130.3m (£119.2m) while its adjusted interim profits before tax were down 38% at £4.4m (£7.1m), with earnings falling 44.5% to 1.57p (2.83p), while the interim dividend was actually increased 20% to 1.2p (1.0p) per share.


The group has a very robust balance sheet and ended the first half with an impressive net cash of £19.9m, together with a useful £49.9m headroom within committed borrowing facilities.


CEO Rob Parker commented that:


"As expected, our first half profitability reflects the impact of inflation year on year, including significantly increased energy costs, and a number of other one-offs.


These effects are now reducing or will reverse in full in the second half, underpinning our confidence in a much stronger profit performance in the balance of the year.


Our strong trading, when combined with our successful strategy, world-class customer service, leading product offer and strong balance sheet, gives us increasing confidence in our outlook.

We remain confident that we are on track to hit our 20% market share target ahead of schedule."


Management Outlook


Profit in the second half is expected to increase materially, which should be driven by the growth of the group’s new businesses, by its improving gross margins, giving confidence that it will perform in line with current market expectations for the year as a whole.


Current market hopes are ranging from £10.6m to £12.3m adjusted pre-tax profits.


Analyst Opinion – Target Price 100p


Adam Tomlinson at Liberum Capital rates the group’s shares as a Buy, looking for 100p as his Target Price.


His estimate for the year to end September is for £261m sales (£247m), while profits ease to £11.3m (£15.6m), earnings fall to 4.0p (6.3p) but with a steady 3.6p dividend per share.


For the coming year he is going for £271m sales, £12.9m profits, earnings of 4.6p and a held dividend at 3.6p per share.


He clearly states that the shares are cheap, offering a double-digit free cash flow and a 7% plus yield.


Conclusion – a move above 60p looks inevitable


Topps is the largest specialist distributor of tiles and related products in the UK.


The majority of its revenues are generated from the domestic market for the renovation, maintenance and improvement of UK homes.


The Q3 Trading Statement is due to be announced in the first week of July at which time we can expect an update on the progress towards the end of its trading year.


Having faced some real struggles in the last couple of years this group is now back on the upward path, its shares now up 2% at 51.5p will soon reflect that growth.


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