Housing market recovery appears to be filtering through into the financials at Topps Tiles (TPT), the UK's biggest tile and wood flooring specialist. Shares in the kitchen floor-to-bathroom wall tiles retailer tack on 1.5p to 130.5p in response to a strong first quarter trading statement.


For the 13 weeks to 28 December, like-for-like sales at the Cheadle-headquartered retailer skipped 9.3% higher against a backdrop of housing market revival. In today's trading update, chief executive officer Matthew Williams highlights an acceleration in same-store sales over the quarter's final month, although no mention is made of Topps' margin performance. Moreover, Williams remains 'cautious of projecting forward this level of performance', achieved against a relatively benign 1.6% like-for-like growth comparative last year.

Web chart - Topps - Jan 2014

Shares in operationally-geared Topps Tiles have rallied hard since full-year figures (26 Nov) as investors hope the business will profit from the UK housing market revival. Those numbers showed modest 2% growth in adjusted taxable profits to £13 million, the first increase delivered since £40 million plus profits were racked up back in 2006.


'In light of the strong first quarter performance we see scope for September 2014 (year-end) pre-tax profit to increase today by a further 6% towards £15.5 million,' writes N+1 Singer, noting that while Topps should benefit from an improving housing market, historically the correlation to transactions has not been as strong as with other housing related segments.


With a 'hold' rating and 100p price target, the broker forecasts pre-tax profits of £14.6 million for 2014, implying 13% year-on-year growth. A 7.5% forecast earnings advance to 5.8p places Topps on a punchy prospective price/earnings ratio of 22.5.


Topps' sharp rally and rich rating prices in the positive impact of housing market recovery, along with as-yet-unfounded bid speculation surrounding larger home improvement retailer Carpetright (CPR). Yet as Shares recently explained, investors need to bear in mind the risk that earnings may never recover to peak levels and the company could face increased competition from Tile Shed and small-but-ambitious online specialist Tile Mountain.

Issue Date: 07 Jan 2014