Topps Tiles bosses could be forgiven if they feel frustrated at the way that the specialist tiles retailer’s large number of branches leads to assumptions that it is a bellwether for consumer trends. The idea seems to be that operating 375 stores means its performance can be extrapolated across the rest of the retail sector and the wider economy (Miles Costello writes).
In Topps Tiles’s case, this is supposed to be all the more so because tiles are a larger one-off purchase, apparently linked to trends in the housing market.
Isn’t this rather outdated? Consumers are no lumpen group: there are millennials and traditionals, younger, older, lovers of modern and vintage, with different spending patterns and preferences. The retail sector, where Topps Tiles stores tend to be at the edge of towns rather than the centre, is fragmenting into those that are succeeding or failing in making their online businesses work.
Just because the housing market may be tailing off, it doesn’t mean trading at Topps Tiles is affected, as householders often choose to do up their homes instead of moving.
Against this more disparate trading backdrop, Topps Tiles is an interesting phenomenon. It was established as a specialist tiles centre in Manchester in 1963 and has pretty much been the same ever since. More recently, it has modernised its stores to make them feel more like boutiques, and it — fairly successfully — combines the internet with bricks and mortar by giving its customers a try-it-yourself online “visualiser” that means you can experiment with styles at home after visiting one of the stores for specialist advice.
Most significantly, in November it moved into the commercial sector, buying Parkside, which installs tiles for architects and designers and their clients, which gives it access to the 45 per cent of the market that it hadn’t been playing in. It is considerably more rounded than the word “specialist” might suggest.
There was plenty to feel gloomy about in yesterday’s trading update covering the 13 weeks to July 1. Like-for-like sales fell 2.3 per cent during the period, their worst performance of the year so far. Analysts detected a deterioration in underlying sales during the last six of the 13-week period, but the company signalled that going into its fourth quarter the trend was for like-for-like sales to be about the same level lower.
Matthew Williams, chief executive, referred to the backdrop of impossibly difficult trading in the retail sector but said that Topps Tiles was performing better than the wider tile market, where it competes with small independent operators and companies such as Tile Giant and, to a lesser extent, Travis Perkins.
Topps Tiles did not provide specific details on trading at its new commercial venture, but it did make it clear how much of a growth opportunity it saw in providing tiling services to companies, stating that it had been increasing the sales force and mounting exhibitions at corporate events, where it said the feedback had been “very positive”.
The shares were level yesterday at 63p, and they are down about a fifth since the beginning of the year, driven by worries about the retailing downturn and lack of consumer confidence.
That means the shares are inexpensive, trading on a multiple of about ten times earnings, and with a yield of above 5 per cent.
The last time Tempus covered Topps Tiles, it rated the shares a “buy”, in part because of its drive into the commercial sector. Though there is little new detail to go on, the idea remains compelling, for reasons of diversification as well as growth. If you’re brave enough to own retail shares, Topps Tiles is worth holding.
ADVICE Hold
WHY The move into the commercial sector is smart and should improve returns
Barclays
If you had to make a list of the ten banks in the world most in need of an activist investor on their shareholder register, it would be hard to make the case that Barclays should be one of them (Harry Wilson writes).
From Deutsche Bank to Goldman Sachs or pretty much any Italian lender, the list of institutions that could do with an aggressive shake-up is long but Barclays, which has its problems, is just not one of them.
Edward Bramson thinks differently. The Wall Street raider has taken just under a 5 per cent stake in the bank, making him its second largest shareholder, and is preparing to fight a battle with its management to get them to cull the investment bank. The problem for Mr Bramson is that he is about six years too late.
While it is true that Barclays once had a problem with its outsized investment bank, several culls have pared it back, most obviously the almost complete destruction of its Asian franchise.
Instead Jes Staley, chief executive of Barclays, has settled on a transatlantic bridge strategy, based on being a leading investment operation in New York and London, an approach that appears to be succeeding.
Barclays ranked fourth in the world for debt and equity advisory work in the first half of the year, overtaking Goldman Sachs. In the first quarter its growth in earnings outpaced that of its rivals as it reported a 16 per cent rise in corporate and investment banking revenues on the year, twice the rate recorded by its US peers.
Like most big European banking groups, Barclays’ shares trade on a multiple of little over half their book value and a dividend yield of just 1.6 per cent. But consensus forecast is for the yield to more than double within the next couple of years and with the stock trading below 190p, having traded above 210p within the past few months, there looks to be plenty of upside for investors.
Of course, Mr Bramson may throw a spanner in the works at some point but at present, it is hard to see what drastic strategic gambit he could force on the bank since so many sacred cows have already been sacrificed.
ADVICE Buy
WHY Shares look cheap and strategy is starting to bear fruit
