Buy into Topps Tiles' rebound

Market research provider Mintel estimates the UK tiling market is worth around £700m a year. Topps derives most of its income from the larger retail tiling segment and has strategically located its 356 stores to be less than a 20-minute drive from most customers. Providing a competitive edge, 86 per cent of its ranges are own-brand or exclusive offerings. There is scope to expand into the fragmented commercial market, which accounts for 45 per cent of the total tiling landscape – commercial sales provided just 2 per cent of Topps’ total revenue in 2019, but it is aiming to become the market leader.

The group is getting back on its feet after a challenging first half – the six months to 28 March were disrupted by low consumer confidence and the outbreak of Covid-19. But customer demand in the third quarter was ahead of Topps’ expectations, with average weekly sales rising from £0.8m in April, to £3.9m in the final week of June – just 5.4 per cent lower than a year earlier on a like-for-like basis.

The £18.1m sale and leaseback of its head office and central warehouse buildings has bolstered the balance sheet, meaning Topps was in a £3.9m net cash position (excluding lease liabilities) as at 27 June, versus £17.3m of net debt at the half-year stage.

While Topps is currently more reliant on physical stores – around 90 per cent of customers visit its outlets during their purchase, it looks better placed to capitalise on changing consumer habits than smaller independents. According to research consultancy Retail Economics, the lockdown saw 45 per cent of UK shoppers buy products online that they had previously only purchased in a store. Indeed, Topps’ website sales soared by 139 per cent in the third quarter.

Further momentum could come from the government axing stamp duty on homes priced at up to £500,000 in England and Northern Ireland until the end of March 2021. An increase in housing transaction volumes could spur more home improvement projects. Data from property website Rightmove suggests pent-up demand, with a 49 per cent surge in enquiries for houses priced between £400,000 and £500,000 in the two weeks after the government’s announcement. That said, the housing market could slow if the end of the furlough scheme sparks a rise in unemployment and a recession would impact consumer confidence.