Support for Topps sticks despite slowdown

Deeper cracks appeared in the recent share price revival of Topps Tiles (TPT) today as the chain admitted it was not immune to the grim retail conditions.

Less than a month ago, the stock was sitting on gains of 50% after a rally triggered by better-than-expected trading figures in November. That’s now a distant memory, culminating in today’s 10% slump following a disappointing start to 2018 caused by poor weather and a softening in market conditions.

Like-for-like sales were down by 2.2% in the second quarter of its financial year, compared with a rise of 3.4% in Q1. Topps thinks that 1.6% of the reduction was due to short-term weather factors and the timing of an earlier Easter.

Topps chief executive Matt Williams still believes the chain is continuing to perform well ahead of the overall tile market.

The retailer also has the support of two leading brokers, with Peel Hunt and Liberum both retaining their Buy recommendations today despite having to slash profit forecasts for this financial year.

One of the attractions of Topps is its well-covered dividend yield of about 4%. According to Peel Hunt, which in January named the company as one of its value stock for 2018, Topps is trading on an undemanding PE multiple of 11.8x.

Analyst John Stevenson added: “The general feel has become more subdued since Q1. Arguably, consumers are putting off big ticket projects – factors we have seen in other trading statements from home-related retailers.”

He has downgraded his profits forecast for this year by 10% to £16 million, with the earnings per share (EPS) figure down to 6.6p from the 7.7p seen in 2017.

Like Peel Hunt’s Stevenson, Liberum analyst Adam Tomlinson thinks that strong cost controls should provide support through the current difficult times.

He added: “We believe Topps’ leading, specialist market position leaves it better placed than its rivals to weather any persistence in softer trading conditions”.

Tomlinson said that there was no change in the positive long-term fundamentals, further helped by opportunities from its recent entry into the commercial market. Having acquired Parkside Ceramics in September, Topps plans to turn the brand into the biggest in the commercial tile market.

As a result of Liberum’s new profit forecasts, the broker has reduced its target price from 100p to 95p. Peel Hunt still has a target price of 100p.

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