Topps Tiles (LSE: TPT) is top of the FTSE SmallCap leaders board, as I’m writing, with its shares up 7% to 65p, giving it a market cap of £125m. Despite the rise, which comes after the company released its annual results this morning, the shares are still well below their 52-week high of 105p.
The UK’s largest tiles specialist, with 372 stores, posted a 1.5% decline in revenue to £212m for its financial year ended 30 September, despite opening a net 21 new stores during the year. Like-for-like sales were down 2.9%. The lower revenue combined with lower margins sent earnings per share (EPS) down 13.9% to 7.63p, while a 3.4p dividend was 2.9% below last year’s payout.
However, Topps said that in the eight weeks since the year-end, like-for-like revenue has increased 3.2%. With this hint of improving trading and the company on a very cheap price-to-earnings (P/E) ratio of 8.5, and a still-juicy dividend yield of 5.2%, the stock appears to have classic ‘value’ credentials.
Top value pick?
In its half-year results the company had said: “The Board is mindful of the risks associated with the decision of the UK to leave the European Union and consider that this is likely to create periods of uncertainty for consumers at various stages through the process.”
Management sounded more upbeat in today’s annual results but while saying it was encouraged by the recent improvement in trading, acknowledged that “due to the highly discretionary nature of our market, consumer confidence remains a key driver of our performance.”
There really is no getting away from the fact that the company’s fortunes are highly geared to the performance of the UK’s economy and consumer confidence. For example, its share price collapsed 95% from peak to trough between 2007 and 2009. With Brexit looming, consumer debt at historically unprecedented levels, and inflation running well ahead of wage increases, I think Topps could be in for a tough few years. On this basis, despite its value credentials, it’s a stock I’m avoiding for the time being.
Top growth pick?
Online fashion retailer Boohoo.Com (LSE: BOO) is the opposite of Topps in that it’s a growth rather than value proposition. Revenue and earnings are both soaring and it may prove more resilient than Topps in the event of deterioration in the UK consumer environment. For one thing, it’s at the value end of the fashion scale and, for another, its international revenues are growing fast.
Earnings are forecast to increase at around 28% a year for the foreseeable future. But how much should we be willing to pay for such growth?
I last wrote about the company in July when its shares were trading at 225p. The forecast P/E was 77, falling to 62 next year. However, the shares have since come down to 180p and the P/E readouts are now 65 and 50. These are still high multiples, but due to the company’s excellent management and long growth runway in international markets, I think the fall in the shares has brought the stock back into ‘buy’ territory.