Fast-growing Topps Tiles ups dividend by 50%

Topps Tiles said in September it would make £17 million on sales of £195 million. It did, more-or-less, but after a cracking start to the new financial year the tile specialist is growing twice as fast as expected. It's increased market share for a sixth consecutive year and the dividend rises by 50%, too. That's confidence.

Top line growth of 10% generated an extra £4.1 million of adjusted pre-tax profit in the 52 weeks ended 27 September, up 31.5%. Like-for-like revenue grew by 8.1% and gross margin jumped by 70 basis points. Net debt reduced by 17% to £20.5 million and despite such a big increase in the payout, it remains 2.9 times covered by earnings.

And like-for-like revenue is up 6.7% in the first eight weeks of the new financial year. That's twice as fast as the city had pencilled in. Peel Hunt bases its full-year forecasts on growth of just 3%, and, given last year's strong first-half, had expected a "broadly flat" start this time at best.

It seems an internal initiative is responsible for the outperformance, but if, as Peel Hunt says, a better guide is 4-5% growth, that's still well ahead of expectations.

The broker currently estimates full-year profit of £18.8 million, giving adjusted earnings per share of 7.5p, up 13%. Expect double-digit growth at least until 2017, it says.

And that doesn't seem unreasonable. Topps has over 30% of the market and wants to take £1 in every £3 spent on tiles in the UK domestic refurbishment market. That shouldn't be a problem given high demand for new tile ranges, store improvement programme and a new marketing campaign led by TV's Phil Spencer of "Location, Location, Location" fame.

Valuation multiples are no barrier, either. Topps trades on 14 times earnings for the current year, dropping to less than 13 for the following year. That's justified by its earnings history and future growth on offer, plus that growing dividend.

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