Topps Tiles Tipped This Weekend....5 Jan 2014 15:10
Inside the City: Topps Tiles floors it
NOT every retailer has been upended by the internet. Topps Tiles, Britain’s biggest flooring specialist, is comfortingly old school.
Indeed, only 1% of its sales come from web-only shoppers. Most use the website but buy in-store — after all, how many people are going to splash out hundreds of pounds on prestige stone cappuccino marble without seeing it in person?
Yet its dependence on the high street didn’t stop Topps from having a barnstorming 2013. Its shares surged more than 130%, closing on Friday at 121½p, valuing the company at more than £233m. Sales increased, if only slightly, for the first time in six years.
The question is, can Topps keep its resurgence going? I say yes. We’ll get a good indication on Tuesday when the company reveals how it traded in its first quarter, which covers the final three months of 2013.
No other retail sector is as closely correlated to the housing market as flooring — the main reason why the last few years have been so lean.
Unless you have been living under a rock, you will know that the housing market has been jolted back into life. Last week Nationwide reported that prices surged 8.4% in 2013 thanks to the government’s Help to Buy financial doping programme. The research firm IHS Global Insight predicts another 8% jump this year.
The Bank of England may be forced to raise interest rates sooner than it envisaged given the gathering pace of the recovery, but that is still likely to be many months away, at least.
The housing boom thus looks set to continue, and Topps is primed to benefit. The broker Liberum Capital has set a price target of 160p — or about 30% above today’s figure.
The logic appears sound. Back in the good old days of 2007, Topps raked in earnings of £44m from 301 stores. The performance then fell steadily until last year’s slight improvement to £15.6m, generated from a larger estate of 328 shops.
There is no reason to think the company cannot inch back towards its pre-crisis health. The chief executive, Matthew Williams, has kept tight control of costs and expanded sensibly. Topps has opened 79 stores in the past five years but closed more than 50, to make sure it has the best locations. Its market share has grown.
The company may not be able to get all the way back to the chunky margins of its heyday, but if it comes close, this will show through in profits — and the share price. Buy.
www.thesundaytimes.co.uk/sto/business/Companies/article1359024.ece
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