Tile and wooden flooring specialist Topps Tiles on Wednesday unveiled a sharp 9.3 per cent rise in like-for-like sales for the first quarter. Not only that, the company's statement shows that the pace of sales has been accelerating, hitting roughly an 11.2 per cent clip in the last four weeks of the quarter. If that trend is maintained then the firm's revenue and pre-tax profits forecasts will need to be upgraded. This is especially true given its operational leverage. Given its well-controlled cost base every additional sale has a greater proportional impact on the profits. Furthermore, the company has a leading UK market share of 28.5% and the balance sheet is being strengthened.
However, quarterly trading statements are a dangerous guide to longer-term trends, given how fickle customers can be. Thus, that encouraging start may not presage a long-term revival. Interestingly, the company's 2007 pre-tax profit of £37.8m is only 11% ahead of today's forecasts. However, back then the shares
were trading at 300p. The Daily Telegraph's Questor doesn't expect a return to those heady days, it says, but exceptional trading for the shares to rise further isn't needed, it adds, just more of the same, as some value investors have picked up on. Hence, Questor maintains its 'buy' recommendation.
A funny bunch analysts are showing concern even when a company such as Costain serves up a perfectly acceptable end-of-year trading statement. First amongst those worries is the short-term cash drain for the company from some of its contracts - such as its work on all 10 of the ageing Magnox nuclear reactors. Nevertheless, that is inherent in such type of work, in which the civil engineer does not receive large amounts of cash up-front, but that cash outflow should not be a problem. As well, Costain has quite an order book piled up, without having even had to look overseas for new contracts. Over the last year its order book grew by 25% to £3bn, 90% of that coming from repeat clients. Furthermore, the outfit's Chief Executive, Andrew Wyllie, sees plenty of opportunities out there to pursue acquisitions. On about ten times' earnings the shares are now near the top of their recent trading range, so it is probably not a good idea to chase them now. "But the long-term story is there; buy on weakness," says The Times' Tempus.
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