Topps Tiles shares boost

Shares rallied after Topps Tiles reported that its Q3 results were in line with expectations and it remained on track to hit its full year targets.

Analysts are currently expecting the company to post a pre-tax profit of between £11.5 million and £14 million for the year to end September with a consensus of £13 million.

Additional analyst views follow:

“Today’s trading update makes a nice change and the exit rate was more like 3%, apparently. But the bad weather this summer has been ideal for indoor DIY work like tiling, so there does seem to be a weather-related boost going on here.” – Nick Bubb, independent

“Topps is slowly getting back on track by outperforming in a turbulent core market. Tiling has suffered more than other decorating categories during the downturn because it is seen as a more expensive, permanent way of modifying a house than something like painting or wallpapering. Indeed, according to our consumer data, over the past two years only 15.9% of the public have purchased tiling products, compared to 61.7% that have bought paint.

Consequently the tiles sector continues to shrink and, with little room to diversify into other areas, even a sluggish performance by Topps represents a decent return. With the category unlikely to return to significant growth until the housing market recovers, Topps is going to have to keep taking share if it is to grow.” - Matt Piner, Conlumino

“Given that the tile sector remains highly fragmented and is unlikely to disintermediate online, we think that Topps has a good long term growth opportunity. The performance in the stub period is better than it looks, given the effects of the extra Bank Holiday (negative).

Stripping this out then growth was 2% in the final six weeks and the exit rate was 3%. To hit our forecast for the year, Topps require H2 like-for-like sales growth of 2%. Given that Q4 last year was -10%, then this should be a soft target. However, assuming some possible disruption from the Olympics, we are holding our numbers for the moment. It is important to remember that the business remains operationally geared in both directions. Every additional £500 per week per store is worth around £4m to pretax profits.” – Philip Dorgan, Panmure Gordon

“The Jubilee weekend was a significant drag on trade, but we understand that the run rate over the most recent 3 weeks has improved. Management indicate they remain comfortable with consensus expectations (£13m) and we do not expect any major changes at this stage but with just the final quarter to come there is scope for our low end estimate (£11.5m) to move up towards the consensus level. We continue to believe that the current valuation still feels too rich and we retain our cautious stance.” – Matthew McEachran, Singer Capital

“No mention has been made of gross margins, although we assume the business is on track to deliver full year gross margin in excess of 60%, in keeping with recent comments.

In a sector not lacking in companies looking for recovery, Topps offers a stable balance sheet, no risk of internet disintermediation and a business that has continued to build market share.” – John Stevenson, Peel Hunt (Topps Tiles broker)

“It is difficult to get a good picture of underlying LFL trends given the different timings of Bank Holidays, the Jubilee and swings in the weather from tempest to (all too brief periods of) more appropriate summer weather. Management believes that the LFL exit rate of the last three weeks of the quarter was around +2% to +3%. While this should improve against the much weaker comparatives, the consumer mindset remains weak and management is wary of possible Olympics disruption.” – David Jeary, Investec Securities

Source : Suzanne Bearne – Retail Week (www.retail-week.com); Sergei Balashov - Proactive Investors
(www.proactiveinvestors.co.uk)