James Halstead proves resilient, while Topps points to recovery

Higher sales in the UK and Australasia offset declines in Europe, North America and the Middle East for commercial flooring supplier James Halstead (JHD) during the six months to 31 December.

While social distancing and employees self-isolating reduced manufacturing efficiency, cost savings from cancelled industry exhibitions helped boost the operating profit margin by 0.8 percentage points to 20.2 per cent. As such, the group’s operating profit came in 4 per cent higher than a year earlier at £26m.

Demand from the healthcare industry has continued to hold up. James Halstead is a key supplier to the NHS and has benefited from the need for flooring for temporary medical facilities during the pandemic.

Yet sectors such as retail and hospitality remain subdued. Topps Tiles' (TPT) commercial sales dropped by a tenth year on year in the six months to 27 March, amid lower demand from restaurants, bars and leisure businesses.

The group only entered the commercial tile market in 2017, and it is still a relatively small part of its operations. Over in the larger retail segment, like-for-like sales ticked up by 2 per cent. This reflects growth of almost a fifth in the first quarter thanks to the pandemic-driven home improvement boom, followed by a 17 per cent decline in the second quarter as lockdown restrictions forced its stores to close to retail customers.

Still, Topps expects a “sharp” increase in sales when its stores are able to reopen. The confident outlook is based on the double-digit bounce back in like-for-like sales following the end of the first lockdown last summer.

For James Halstead, the second half of the year has thus far presented additional challenges on top of the pandemic. There was early confusion from new Brexit procedures, and while that has somewhat settled, goods sourced from the European Union that are then re-exported are now subject to import duty.

There has also been a shortage of raw materials – which chairman Anthony Wild says is “bordering on supplier rationing” – as well as higher shipping costs.  

Despite these hurdles, house broker Panmure Gordon forecasts full-year operating profit of £45.9m, up from £44.1m last year, and we think James Halstead’s shares are worth hanging on to. The group is currently sitting on £74m of net cash (excluding lease liabilities) and is handing shareholders a 4.25p a share half-year dividend. Hold.

With regards to Topps Tiles, it is well positioned to recoup momentum post-lockdown – broker Liberum forecasts high double-digit or even triple-digit like-for-like growth in the third quarter. The group’s commercial order book has also improved. Buy.

Last IC Views: James Halstead: Hold, 490p, 1 Oct 2020; Topps Tiles: Buy, 42.6p, 30 Jul 2020