Wednesday newspaper tips: Topps Tiles, Costain

8th Jan 2014 08:33

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. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB