Topps isn't Top of the Class

The Week: Morningstar columnist Rodney Hobson looks at mixed updates from Topps Tiles, Stock Spirits, and Countryside Properties

Rodney Hobson 4 December, 2020 | 9:22AM
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The Week

The Boris Johnson school of slogan writing is really thriving among struggling companies. Topps Tiles (TPT) is the latest to join the bluster brigade with its “world-class customer service” (well, it makes a change from world beating) and its “1 in 5 by 2025” target – the aim is to account for £1 in every £5 spent on tiles within five years. This will be achieved by “enhancing our value credentials”. Very droll.

Alas, it has been a dreadful year for a company with a long history of underperformance. The figures for the 52 weeks to September 26, which do not merit a mention in the operational headlines, show revenue down 12% and a pre-tax loss of £9.8 million despite a bounceback in the fourth quarter after store closures in the previous three months.

Naturally there is no dividend but the ever-optimistic board hopes to reinstate the payout in the current financial year. Early signs are encouraging, with like-for-like revenue up 19.6% in the first eight weeks of the current financial year, although that figure loses a little sparkle given that comparisons are with a pretty disappointing start to the previous financial year well before Covid-19 struck.

What worries me most, though is the “transformation” of the balance sheet through, in large part, the sale and leaseback of head office and central warehouse buildings. Yes, there is a one-off gain of £17.9 million but the group is saddled with paying rent that will inevitably rise over the years. This makes sense only if the cash can be used to generate more in profits than goes out in rent, which is a tall order.

The shares slumped from 81p to 25p in February-March, one of the worst performances in the general stock market crash, and the subsequent recovery petered out at 60p. They are not worth any more until the slogans turn into reality.

Buying Stock

Instead of laying tiles, perhaps more people have turned to the booze to idle away the hours. Stock Spirits (STCK), which sells mainly in Central and Eastern Europe and Italy, improved volumes by 3% in the year to September 30 with underlying revenue 6.9% higher. With 85% of sales coming from the off-trade, Stock has not been hit badly by the closure of restaurants during lockdowns.

Profits would have been pretty impressive, too, if €21 million in exceptional charges had not knocked a hole in them. Investors won’t mind too much, though, as there is an increased dividend plus a special payout as well.

Stock would rather have spent some of that cash on acquisitions but couldn’t find one that added value, nor is it likely to do in the near future. Well done any company that prefers to reward shareholders rather than squander the money on dubious expansion.

The shares got off comparatively lightly during the stock market slump earlier this year and they are now well above the pre-Covid 19 level so the encouraging figures are reflected in the share price. Even so, they should edge higher.

Better Value Elsewhere

Don’t mix up housebuilder Countryside Properties (CSP) with estate agent Countrywide, the subject of one and possibly two takeover proposals. Countryside stands on its results alone, and pretty poor they were in the year to September 30. I can’t help feeling that it fared worse than others in the sector.

It’s true that the forward order book looks promising and the company claims to be on track to achieve the upper end of profit expectations for the current financial year. But these are still early days and the release of pent-up demand will soon have run its course.

I feel there is better value elsewhere in the sector, though that may be because I hold stakes in three rivals.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.