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Carpetright and Topps Tiles set for strong earnings growth

A focus on self-help has placed both businesses on a sounder footing.

While some pundits raise concerns about the government inflating a housing bubble, floor-covering retailers Carpetright (LON:CPR) and Topps Tiles (LON:TPT) have probably been muttering quiet words of gratitude.

“Topps Tiles and Carpetright are businesses that have suffered significant sales, margin and earnings declines since the housing peak,” notes Oriel Securities, in a note entitled “Flooring it”.

“An improved outlook for housing transactions and discretionary spend through the ‘Help to Buy’ scheme and increased personal tax allowance give cause for optimism,” the broker claims, as it upgrades Carpetright from ‘hold’ to ‘add’.

By Oriel’s reckoning, housing transactions will grow 6% this year and by 8% next year, with discretionary spend increasing 2% in 2013 and 5% for 2014 and 2015.

Profits are between 70% and 80% lower than peak levels, and while the broker does not expect a return to the sort of profitability levels seen around 2005, “both businesses are positioned for strong earnings growth in the medium term,” Oriel reckons.

Of the two, Topps gets the stronger backing, with a ‘buy’ recommendation and a 100p target price, offering 20p upside to the current price. The target price for Carpetright, currently trading at 652p, is 700p.

Source : John Harrington – Proactive Investors

21 August 2013
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