Small Cap Value Report (24 May 2016) - TPT, ACSO, PTCM

Tuesday, May 24 2016 by

Good morning!

Topps Tiles (LON:TPT)

Share price: 136.4p (up 3.9% today)
No. shares: 193.1m
Market cap: £263.4m

Interim results, 26 wks to 2 Apr 2016 - the numbers look solid. Here are the KPIs, with my comments on the highlighted items below:


Note that total sales growth of 3.8% in H1 is actually lower than the LFL sales growth of 4.7%. This must mean that the number of stores actually declined. The narrative confirms this is due to the closure of their Topps Clearance format.

This looks to me like a company which is becoming mature. So it looks to have taken a bit of a breather from expanding the number of stores, and instead focussed on profitability. That makes a lot of sense, it's not a criticism.

Gross margin of 61.5% is outstanding. You can't really fail to make money with that kind of profit margin. Although it will of course attract competition.

Net debt of £28.4m isn't a problem, given the strong profitability, which should be in the £20m ballpark for the full year. The Naked Trader suggests a simple reasonableness check, that net debt shouldn't be more than 2-3 times profit. Something like that anyway. I think that's an excellent & very simple way to double-check that debt is not excessive.

I think you could tweak that idea, by looking at the volatility of historic profits, and thinking about how cyclical the company is. So you might tolerate more debt, if the company is not particularly cyclical, and has churned our reliable profits every year, even in recessions.

Also, I always offset freehold property against net debt, because banks are very relaxed about debt where they hold freeholds as security. Also, in the worst case scenario, freeholds can be sold to raise cash, in order to reduce bank debt. In this case, TPT says today:

The Group currently owns eight freehold or long leasehold sites (2015: eight), including one warehouse and distribution facility, with a total net book value of £16.3 million (2015: £16.6 million).

So that makes me even more relaxed about the £28.4m net debt.

Interest cost has reduced considerably on the P&L in H1, which is handy.

Dividends - the downside of companies with bank debt, is that the divis can sometimes be a bit constrained. That's certainly been the case with TPT in the past. The…

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Topps Tiles Plc is a United Kingdom-based retailer of tiles. The Company is engaged in the retail distribution of ceramic and porcelain tiles, natural stone, and related products. It operates in the Topps Tiles stores and online business segment. It supplies tiles and associated products to both trade and retail customer base, primarily for the refurbishment of the United Kingdom domestic housing. Its product categories include new products, bathroom wall tiles, kitchen wall tiles, mosaic tiles, kitchen floor tiles, bathroom floor tiles, ceramic tiles, porcelain tiles, underfloor heating, wet rooms, outdoor tiles, fireplace tiles and metro tiles. Its brands include Tile Adhesive, Tile Grout, Tile Preparations, Hardiebacker Board, Rubi Tools and Accessories, Warmup, and Homelux Tiles Trims. It offers tiles in various colors, such as beige tiles, black tiles, blue tiles, brown tiles, cream tiles and gold tiles. It has over 350 stores across the United Kingdom. more »

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accesso Technology Group plc is a United Kingdom-based company engaged in the development and application of ticketing, mobile and e-commerce technologies, and virtual queuing solutions for the attractions and leisure industry. The Company's solutions include accesso LoQueue, accesso Passport, accesso Siriusware and accesso ShoWare. accesso LoQueue is a queuing solution that includes Qsmart, Qbot and Qband. The accesso Passport ticketing suite is built where its customers shop. accesso Siriusware provides clients with ticketing and admission solutions, and includes various modules, such as OnSite Ticketing, OnLine eCommerce, Point-of-Sale and Guest Management. accesso ShoWare offers a range of ticketing software solutions for theaters, fairs, arenas and tours. The Company's products and services support attractions in the world, including a range of paid admission operations ranging from theme parks, water parks and zoos to cultural attractions and sporting events. more »

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Porta Communications Plc is engaged in international communications and marketing business. The Company operates through three segments: Corporate Communications, Marketing & Advertising, and Head Office. Its Corporate Communications segment includes public relations, public affairs and other corporate communication services. The Marketing & Advertising segment includes media buying, advertising, marketing and corporate branding services. Its Head Office segment includes services provided by the Company's corporate function, including group treasury, and finance and management services. The Corporate Communications segment operates in Australia, Hong Kong and Singapore. The Company's subsidiaries include 13 Communications Limited, Clare Consultancy Limited, ICAS Limited, Newgate Communications Limited, Newgate Communications Pty Limited, Newgate Threadneedle Limited and PPS Group Limited. more »

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  Is LON:TPT fundamentally strong or weak? Find out More »

29 Comments on this Article show/hide all

Paul Burkitt 24th May '16 1 of 29

I own both TPT and ACSO
I sat on my hands when ACSO directors sold big time earlier this year- since then a 20% rise in the share price, even after the pull back today. I really rate this business - will continue to sit on my hands!! The fact they can predict a significant portion of their revenues out to 2024 is a huge plus

I bought tiles from Topps Tiles a few years ago - and was impressed by their quality of service and ability to deliver very quickly. I agree that this is a nice business and lets hope the dividends really start to motor

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Brackendale 24th May '16 2 of 29

Hi Paul, Since it is a quiet day... what am I missing with Bonmarche (BON)? Enterprise value of £40 million or so, cash on balance sheet, does £9-10m net profit, great return on capital employed. There is a change of boss happening and the last announcement was cautious but still seems a weirdly low value to me, there surely must be something obvious I have missed. Any thoughts? Something to do with upcoming changes in accounting for leases maybe?

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herbie47 24th May '16 3 of 29

In reply to post #132548

Yes they look good value but the sector is down, even the better retailers have fallen quite markedly such as Next (LON:NXT) and Ted Baker (LON:TED), the future of high street retail is not looking rosy. The trading update did not help and it looks like a profit fall this year. One positive is the age group they sell to are less likely to do online shopping. I don't hold any Bonmarche Holdings (LON:BON) but I hold Next (LON:NXT) who have recovered slightly.

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Chrisfarrell21 24th May '16 4 of 29

In reply to post #132548

See the RNS announcements over the past six months - both Hargreave Hale and Miton appear to be selling down their holdings. HH still have approx 9%; the question is are both trying to get out completely, or just reduce their holdings?

At some point it will bottom out at what could be a very attractive valuation.



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mammyoko 24th May '16 5 of 29

Ex-cash p/e at current price and based on Morningstar forecast eps of around 5 looks too harsh

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Beginner 24th May '16 6 of 29

In reply to post #132566

Sorry, but what are you referring to?

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mammyoko 24th May '16 7 of 29


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danpollard 24th May '16 8 of 29

I like Topps Tiles, I used to have a load but sold them for reasons which escape me at the moment. They’ve open up a few boutiques near me on the mean streets of Knutsford and Wilmslow, Cheshire. Nice staff, decent tiles and it’s good to see they’re opening on the high street. I hate driving out to the arse-end of nowhere, to some scrubby industrial estate to do my home-improvements shopping. I’d much rather wander round Knutsford, get some nice lunch, have a mooch round Tatton Park – much more civilised than missioning to Trafford Park. Strangely, the Knutsford Topps Tiles Boutique is sandwiched between McLaren and Tesla dealerships. Maybe the high street isn’t dead after all? It’s just changing and evolving.

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herbie47 24th May '16 9 of 29

In reply to post #132581

Thats interesting because its the opposite location near me, in fact the last 2 locations I have lived Topps have been tucked away on industrial estates. High street locations are expensive and maybe not so good for loading tiles which are heavy items. To be honest I prefer out of town locations, access and parking nearby is easier, its just less hassle. My concern is if there is any slow down in the housing market then Topps who are more mid to top end in tiles will get hit again, you only have to look back at the last recession.

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 Are LON:TPT's fundamentals sound as an investment? Find out More »

About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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