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Thank you for your analysis and opinion. Fascinating.
Considering the current economic backdrop and the impact of minority interest accounting on the results (including the cost of acquiring the remaining interest in ProTiler being expensed to the P&L), the last results were actually pretty good. TPT is not immune from the economic headwinds but, despite the tile market contracting, TPT has managed to grow its market share. Also, the fact that gross margins have fallen is somewhat misleading; the ProTiler brand actually delivers similar operating margins to the Topps Tile brand. When, as expected, TPT buys out the remaining minority interests in ProTiler at the end of March there will be an immediate boost to both PBT and EPS (even if FY24 results continue to slide). Furthermore, TPT has a healthy amount of cash and continues to be cash generative.
When the economy begins to rebound TPT will be in a very stong position. FY24 may prove tough as last year's inflationary rises really start to bite and people start to tighten their belts still further (as the recent Q1 update showed) but TPT is well placed to benefit from any future uptick.
I'm really not sure what you expected from last year's results unless you expected TPT to hand its profits to MS Galleon on a plate! MS Galleon clearly has an axe to grind (it wants all of the benefits of outright ownership without the associated cost). What's your beef?
Thank you for your calm and considered reply - but yes I am aware that Galleon hold a large chunk and as it happens still think that the performance was less than stellar and joined them in voting against the remuneration package and the Chair of the remuneration committee. It's called expressing a personal opinion which clearly you don't agree with - which is fine.
Why don't you do some research before you post?
The directors' remuneration (including LTIPs) was c£1.7m or c0.6% of turnover last year. The reason that there was such a large vote against their remuneartion package (and the head of the remuneration committee) can be summed up in one shareholder - MS Galleon - who owns just under 30% of the shares and wants to dictate who TPT buys their products from without actually paying the premium needed to acquire a controlling interest.
If MS Galleon had their way, TPT would now be buying c30% of their tiles from MS Galleon and no doubt diverting profits from TPT to MS Galleon in the process. The other c70% of shareholders told them where to get off last January and it still rankles with them. If you think the results are less than stellar in the current economic environment, think how much less stellar they would have been if MS Galleon had successfully diverted most of the profits to themselves!
Another whacking vote against the directors remuneration scheme - and yet again the board will seek to understand...blah blah blah. Understanding isn't too hard really so let me try and help - you have no special ability, the results are hardly stellar but having boarded the gravy train you don't see why it shouldn't run and run.
Interestingly, in today's investors' presentation TPT were keen to stress that the operating margin for both the Topps Tiles and Online Pure Play (primarily ProTiler) businesses were in the range of 8-10% (despite Topps Tiles having a gross margin of c60% and Online Pure Play having a gross margin of c30%) i.e. although gross margin is a metric, it's not the key metric when comparing the relative performance of the two businesses. The Topps Tiles business has much higher distribution, sales and other overheads than the Online Pure Play business and, as such, (a) the two businesses do compliment each other and, (b) driving sales in the Online Pure Play business will not harm the bottom line (both businesses are delivering fairly similar marginal operating returns).
Not sure it will be a "huge drag". It may have lower gross margins than Topps but it also has lower overheads and a much higher growth trajectory. Unlike Topps, ProTiler doesn't have to bear store costs (which are expensed through distribution and selling costs). The margin including distribution and selling costs has fallen from 18.5% to 17.3% YoY which, given the current economic backdrop, is not too bad.
If you say so. ProTiler and the other web operation will be a huge drag on the gross margin going forwards. Indeed, many of their competitors online seem determined to lose money.
Never mind, the "investment" in covering the warehouse roof with Chinese polysilicone solar panels, made using coal, will provide all the electricity they need.
At mid day
In June
If it's not cloudy.
~£2.5m of the decline in profits YoY is due to ProTiler share puchase expenses (provision for the expected cost of acquiring the remaining 40% of the ProTiler shares under the terms of the original share purchase agreement). Historically, under old accounting conventions, such costs would have been capitalised rather than expensed. Regardless of whether you agree or disagree with the current accounting convention, most, if not all, of these costs should not be recurring beyond March 2024 (assuming that Topps exercises its option at the earliest opportunity). It should also be noted that these expenses are not tax deductible for purposes of computing corporation tax (they are, instead, deductible for the purposes of calculating any chargeable gains should ProTiler ever be sold).
Also, ~£0.7m of the PAT is currently attributable to non-controlling interests (the original shareholders of ProTiler) and is excluded from EPS atrributable to Topps' shareholders (ProTiler is currently accounted as if Topps owns 100% of the shares and the profits attributable to the original shareholders of ProTiler is then adjusted out via the non-controlling interest line). Once the acquisition of the remaining 40% is completed there should be an automatic boost to the profits attributable to the Topps' shareholders.
For comparison purposes, the adjusted profit before tax is probably a fairer reflection of the profits that will be attributable to Topps shareholders once the acquisition of the outstanding ProTiler shares has been completed and, on that basis and assuming corporation tax at 25%, the adjusted earnings per share have fallen from 5.9p per share to 4.8p per share YoY.
First impressions. Big decline in profits, dividend exceeded profit, and current market conditions subdued.
Looks like the market is reflecting that.
Https://www.fool.co.uk/2023/11/12/3-magnificent-dividend-stocks-to-generate-passive-income/
Personally, I'm hoping for a bit more and have pencilled in a final dividend of 2.9p (bringing the total to 4.1p) but would settle for a final dividend of 2.8p.
TPT is now in a far better financial position than it has ever been before/during previous recessions/downturns (it's debt free). Who else here still remembers the share buyback made using borrowed funds back in 2006? It proved to be a total disaster following the 2008 banking collapse; took TPT years to repay the debt, the dividend was cut to zero (and has only recently started to recover albeit still less than 50% of pre-2008 levels) and the share price still hasn't recovered!
I would suspect that TPT is in a far better financial position than many of its direct competitors and is therefore well placed to increase market share if some of those competitors go to the wall (as they inevitably do during recessions). So, although the cake may be smaller TPT's share of the UK market is likely to get bigger. TPT may not be totally immune but it might ride out a recession/downturn a lot better than some might otherwise give it credit for.
Producers are talking of really significant drop in volumes, causing a lot of kiln closures and job furloughs. Can't really see how Topps can avoid the negative impacts of high interest rates and reduced construction activity. Doesn't take a candlestick to shed light on an industry in tough times IMHO
Plenty of historic overhead supply at 60, which would be expected to impede upward progress. The chart is deceptive, until the candlesticks are looked at . The shadows, that part of the trading outside the open and close, at least equals , the differences between open and close. The verdict, the equity is volatile. volume in the last couple of days was less than 10,000. Not really a suitable equity for an investor , with such volatility .
Maybe a bid is coming?
Another near 9.7% rise today, 17.5% for the month on top of a 7.4% yield. Feels to good to be true. It really does start to look like there is a material change in the market view of TPT.
Got onboard at 40p and have been topping up ever since!
You could be correct. Falling consumer confidence, house prices falling, borrowing costs soaring, another energy crisis this winter. Got all the hallmarks of a re rate, I agree.
8-10% increase this morning. That's unusual. Hopefully it can be sustained. I think TPT is long overdue a re-rating.
Reassuring update- good growth and expectations for year confirmed = rising sp today, I hope!
That should have read as c£2.8m increase in profits in H2 compaered to H1 (I unintentionally doubled the expected energy saving in H2).
Because of the reversal of the holiday pay provison (essentially bringing forward H2 expenditure into H1) and the reduction in energy costs in H2 compared to H1, they already expect a c£3.8m increase in profits in H2 compared to H1, even before allowing for improving margins (they expect to benefit from lower input costs whilst at the same time being able to pass on some of the more recent inflationary costs, through some pricing increases, that they've had to absorb to date), increasing LFL sales and improving profits in new businesses.
In their FY22 accounts they said that they expected to have to absorb about £5m of additional costs in FY23, of which about £2m relates to gas and electricity. The market is competitive and they want to maintain/increase their market share and, as such, are willing to absorb some costs to achieve that aim. They also said (in effect) that they expected some of those extra costs to be offset by the additional profits generated from increased YoY sales. Bottom line, they predicted FY23 profits to be marginally lower than FY22 (I'd interpret this to imply no more than 10%) and today's RNS would indicate that there's been no material change in their FY23 outlook. It's all steady as she goes.
At first glance the dividend doesn't appear to be covered by EPS but I believe adjusted EPS is a better guide. Due to changes in accounting rules, "earn-outs" under the terms of the Pro Tiler Tools purchase agreement are being expensed rather than capitalised (£1.7m was expensed in H1). It's normal business practise for part of the purchase consideration (the earn-outs) to be dependent on post-acquisition performance (acquirors want to try and ensure that they're not buying a "dud" and/or that pre-acquisition performance has been artificially boosted in some manner to try and increase the purchase price). In the past, these earn-outs were accounted as part of the acquistion cost but accounting rules now say otherwise. Whether or not you think the new accounting treatment is correct (from a tax perspective the earn outs are still treated as part of the acquisition cost for the purposes of any future sale and are not deductible as a normal business expense), these costs are not expected to be recurring beyond the end of the agreed earn-out period.
Divi increase is great news - only worry is headline margin fall but that is explained away so hopefully the market will respond positively.
Positive trading update today
“The DIY season normally runs from spring until October half term to coincide with warmer weather and longer days." What is needed is a bid from a non-30% holder.
Not sure what MW's plans are but I suspect that for the remainder of 2023 he'll just be wanting to stabilise Tile Giant. Given that he left Topps over 3-years ago I thought the link was a bit tenuous; just a journalist looking to earn brownie points from naming names rather than doing any real journalism. I think it's a non-story for Topps other than the strong are likely to become stonger in the current market.
I'm not sure what percentage of the tile market Tile Giant currently has but I don't think Topps would be allowed to buy a large competitor because of potential competition issues whilst buying a small competitor is unlikely to be as beneficial to Topps as it might be to its larger competitors who might currently be less resilient (would probably add little or nothing to Topps's revenues but would reduce competition in the market generally; making its competitors stronger). Instead, I think that if Topps is looking to be aquisitive it will look at ancillary additions (like Pro Tiler). In the meantime, there is nothing to bar Topps from increasing its revenues organically and taking market share by taking advantage of its existing economies of scale.