Topps Tiles Plc

Topps Tiles Plc (LON: TPT) is a Leicestershire, United Kingdom-headquartered retailer of tiles, which supplies tiles and associated accessories to both trade and retail customer base for the refurbishment of domestic housing.

COVID-19 Update
On 26^th March 2020, Topps Tiles released an update on the impact of the Coronavirus outbreak. After the announcement made by the UK Government on 23rd March 2020, the company has stopped its store operations for the protection of its employees and customers. The group will focus on its online operations and will try to fulfil its existing customer orders. The group is taking the required steps to ensure that it remained in the position to recover once the situation stabilises. The company’s sales from the retail business have declined by 3.1 per cent for 12 weeks period ending 21^st March 2020. The company remained in a good financial position with a strong balance sheet. The group is having arevolving credit facility of GBP 39 million and cash liquidity of around GBP 20 million.The company also have accordion facility subject to the approval of the lender of GBP 11 million. The total net debt as on 28^th March 2020 is expected to be around GBP 19 million. The group currently is now able to provide an accurate update but expect its revenue and profit to decline in the second half of FY2020. The group has withdrawn its guidance for FY2020 and doesn’t expect to pay an interim dividend in the financial year. The current outlook remained challenging; however, the group is resilient with decent liquidity and a well-experienced management team.

Share Price Performance

Daily Chart as of March 27^th, 2020, before the market close (Source: Thomson Reuters)

Topps Tiles Plc shares were trading at GBX 41.9 at the time of writing before the market close (at 12:30 PM GMT) on 27^th March 2020 and up by 1.70% versus the previous day closing price. Stock's 52 weeks High is GBX 85.00 and Low is GBX 25.00.
 
Valuation Methodology

*Peers: Ted Baker Plc, ASOS Plc, Next Plc and Dunelm Group Plc.

Conclusion
The company is facing challenging conditions after Covid-19 outbreak. A continuous weakening in home improvement spending has affected the financial performance of the Group. The company reported a declining financial performance during the latest trading updates. The company is focusing on the reduction of costs and strengthening its cash flows. The company is focusing on its retail offer and recently established commercial operations which provided the Group with a strong platform to deliver sustainable growth over the medium and long term. The company is looking to expand its commercial business with the Strata Tiles acquisition and will provide an entry to the company in a large and attractive market Parkside commercial segment.

Based on the above rationale and the valuation done using the above method, we have given a “SPECULATIVE BUY” recommendation at the current price of GBX 40.15 (as on 27^th March 2020, before the market close at 11:05 AM GMT) with lower double-digit upside potential based on 15.30x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Lookers Plc

Lookers Plc (LON: LOOK) is a speciality retailers’ group, which operates as a motor retail and aftersales company.

The group will announce its interim results on 12^th August 2020.

COVID-19 Update
On 23^rd March 2020, Lookers released an update on the impact of Coronavirus outbreak. The group is monitoring the impact of coronavirus and is following the advice of the Government of the UK. The company is focused on ensuring the safety of its employees and its customers. The company witnessed that it cannot operate car dealerships while maintaining social distancing and has closed all trading locations temporarily. The group will try to operate maintenance and repair activities in a few locations and will enhance the operating procedures. The company will seek all government support to protect its business and colleagues. The group is in active discussion with its OEM partners for support and taking required steps to preserve cash and reduce costs. The company expect its net debt to be around GBP 62 million as on 31^st December 2019 and has a revolving credit facility of GBP 250 million from 5 banks. The group is also benefited from strong property portfolio with GBP 317 million of net book value as on 31^st December 2019. The group announced a delay in financial results 2019 publishing, due to some potentially fraudulent transactions. The company is unable to predict the impact of rapidly evolving events but is taking relevant measures to ensure the safety of its staff and financial stability.
 
Share Price Performance

Daily Chart as of March 27^th, 2020, before the market close (Source: Thomson Reuters)

Lookers Plc shares were trading at GBX 19.90 at the time of writing before the market close (at 12:34 PM GMT) on 27^th March 2020 and up by 16.65% versus the previous day closing price. Stock's 52 weeks High is GBX 103.90 and Low is GBX 10.54.

Valuation Methodology

*Peers: Boohoo Group Plc, Vivo Energy Plc, Pendragon Plc and Motorpoint Group Plc.

Conclusion
In the current trading statement, the company has reported a downturn for the fiscal year 2019. In 2019, the Group faced many challenges which caused a decline in its growth. Lookers profitability has declined due to various factors such as the declining new car market, etc. The company was facing a challenging market condition due to weak customer confidence and retail cost inflation. The overseas markets also provide a challenging opportunity for the company. However, amidst all the favourable micro and macro factors, the downside risk overweighs the prospects of the company. Due to Covid-19 outbreak, the company has temporarily suspended all car dealerships operations and expect its revenue and profitability to be impacted and also adversely impact the performance in the next financial year.

Based on the above rationale, we recommend investors to “AVOID” taking fresh positions in the stock at the current price of GBX 20.64 (as on 27th March 2020, before the market close at 8:25 AM GMT).

*All forecasted figures and peer’s information has been taken from Thomson Reuters.

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