Topps Tiles Plc (LON: TPT)

Business Overview
Topps Tiles Plc 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 in the UK through 1,500 specialist experts and 364 stores nationwide, making it the biggest tile specialist in the country.

Trading Updates - 8 Weeks ended 22nd February 2020
The company reported challenging trading in the first eight weeks of the second quarter. Spending in home improvement remained weak which affected the business of the Group. Like-for-like sales in the retail segment decreased by 5.5% during the period. The company expected first half profit to be significantly below the last year level.  The Group expected adjusted profit before tax to be below the bottom end of the current range of market expectations of GBP 13.5 million to GBP 14.5 million for the 53 weeks ended 3 October 2020. The Group now enhanced its focus on costs and cash management. 

The company will announce its half-yearly results on 19th May 2020.

Share Price Performance

Daily Chart as on 11^thMarch 2020, before the market closed (Source: Thomson Reuters)

On March 11, 2020, at the time of writing (before the market close, at 10:05 AM GMT), Topps Tiles Plc shares were trading at GBX 48, up by 4.34 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 85/GBX 44.35. 

From the technical standpoint, 14 days-Relative Strength Index of the stock is hovering near the oversold zone, which is strengthening the upside move.

Valuation Methodology


Conclusion
The company is facing challenging conditions. 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 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 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 supported by valuation, we have given a “SPECULATIVE BUY” recommendation at the closing price of GBX 46 (as on 10th March 2020) with double-digit upside potential based on 17.56x NTM P/E (approx.) on FY20E earnings per share (approx.).

Kromek Group Plc (LON: KMK)

Business Overview
Kromek Group Plc is a Health Care Equipment & Services company which is engaged in the business of developing and supplying of CZT (cadmium zinc telluride) and other technologies -based radiation detection products.

Financial Highlights – H1 Financial Year 2020

(Source: Interim Report, Company Website)

In the first half of the financial year 2020, due to an increase in the product sales for the period, the company’s revenue was up by 43 per cent to GBP 5.3 million as against GBP 3.7 million in H1 FY2019. The product sales contributed 82 per cent of the total revenue for the period (H1 FY2019 – 78 per cent). In H1 FY2020, the company’s gross profit stood at GBP 3,093 thousand versus GBP 2,480 thousand in H1 FY2019. The company’s gross margin went up to 58 per cent in H1 FY2020 versus 57 per cent in H1 FY2019. The company reported an EBITDA loss of GBP 0.6 million for the period. Due to an increase in the operating expenses, the company reported an operating loss of GBP 2,342 thousand in H1 FY2020 versus an operating loss of GBP 2,086 thousand in H1 FY2019. The LBT (loss before tax) stood at GBP 2.7 million in H1 FY2020 versus a LBT (loss before tax) of GBP 2.1 million in H1 FY2019. The LAT (loss after tax) from continuing operations was at GBP 2,264 thousand in H1 FY2020 versus a LAT (loss after tax) from continuing operations of GBP 1,653 thousand in H1 FY2019. The basic and diluted loss per share stood at 0.7 pence in H1 FY2020 versus a basic and diluted loss per share of 0.6 pence in H1 FY2019.

Share Price Performance

Daily Chart as on 11^thMarch 2020, before the market closed (Source: Thomson Reuters)

On March 11, 2020, at the time of writing (before the market close, at 12:04 PM GMT), Kromek Group Plc shares were trading at GBX 18.475, up by 6.30 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 27/GBX 15. 

From the technical standpoint, 14 days-Relative Strength Index of the stock is hovering near the oversold zone, which is strengthening the upside move.

Valuation Methodology

*Peers: Elgi Equipments Ltd, Blue Star Ltd, SKF India Ltd, Diploma Plc and Estun Automation Co Ltd

Conclusion
In the first half of the financial year 2020, the company had shown a decline in the financial performance. The top-line performance has improved, while the bottom-line performance has declined, and profitability remained in the negative zone for the period. The company has entered the second half of FY2020 with an increased commercial momentum and has signed multiple agreements. The company has witnessed the adoption of its next-generation products and an increase in the demand for its flagship products. The company expects its revenue and EBITDA to be in line with the set guidance for FY2020.

Over the course of 4 years (FY15 - FY19), the company’s total revenue surged from GBP 8.10 million in FY15 to GBP 14.52 million in FY19. Compounded annual growth rate (CAGR) stood at 15.71 per cent.

Based on the above rationale and the supported by valuation, we have given a “SPECULATIVE BUY” recommendation at the current price of GBX 17.40 (as on 11th March 2020, before the market close at 8:30 AM GMT) with double-digit upside potential based on 21.58x NTM EV/EBITDA (approx.) on FY20E EBITDA (approx.).
 
 
*All forecasted figures have been taken from Thomson Reuters.
*The “Speculative Buy” recommendation is valid for the current price as covered in the report (as on 11th March 2020).

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