Despite a 4.7% like-for-like slip and profits drop in its first half, Topps Tiles has strong recovery potential according to the analyst community.
“We don’t expect that historic margins will be re-attained any time soon, but that doesn’t mean that there cannot be a recovery. Indeed, in the short run, there is scope for upgrades, should the encouraging start to the year be maintained. Given that the tile sector remains highly fragmented and unlikely to disintermediate online, we think that Topps has a good long term growth opportunity.” - Philip Dorgan, Panmure Gordon
“Topps Tiles is our top pick of the potential recovery stocks. 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. In essence, Topps is a business waiting for economic recovery, geared into consumer spending.” - John Stevenson, Peel Hunt
“This valuation [32.1p] feels too rich and we retain our cautious stance given our belief that consumer spending on the home remains under pressure and that the business faces increased competition from the DIY sheds in this cycle, especially B&Q.” - Mark Photiades, Singer Capital Markets
“The gross margin was lower than we had expected. While gains through direct sourcing and the new warehouse have come through, these have been offset by investment in pricing and a mix shift towards more trade sales. Current trade is encouraging. We think that the unseasonable weather has probably supported indoor projects to an extent.” - Sanjay Vidyarthi, Espirito Santo
“Fewer people moving home as well as tighter finances for those staying put has depressed demand for large redecoration projects, including tiling. Despite the challenged background, the competitive environment has intensified with the expansion of Travis Perkins owned Tile Giant and plans by B&Q to revamp in the in-store experience. Against such a backdrop, as the market leader Topps has the most to lose and cannot afford to stand still.
Fortunately, Topps is investing in improving the store experience and providing a better service proposition. Such improvements should help Topps to expand its appeal beyond its traditional customer base. In our view Topps continues to execute the right strategy in a difficult market.” - Neil Saunders, Conlumino