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I personal a couple of penny shares in my Shares and Shares ISA. Of them, one is now price considerably lower than I paid for it. On prime of that, 2025 may probably see issues worsen not higher.
So, was this a mistake for me to purchase – and ought I to promote?
A difficult 2024 for a longstanding enterprise
The share in query is Topps Tiles (LSE: TPT).
It’s down in worth by 23% over the previous yr and over half on a five-year timeframe. Ouch.
There are good causes for the autumn prior to now yr, in my view. Final yr noticed like-for-like revenues fall 9%. A £7m revenue earlier than tax the prior yr became a £16m pre-tax loss.
The dividend per share was reduce by a 3rd. I feel it is without doubt one of the causes some buyers cling onto the inventory, so it’s comprehensible that the board was detest to axe it altogether.
Nonetheless, given the loss final yr, I see a threat that the dividend may but go to zero.
Would possibly 2025 be any higher?
A number of the causes for final yr’s poor efficiency might be simply as dangerous – or worse – this yr.
Weak demand within the tile market is a essential one. On prime of that, the corporate’s acquisition of property from bankrupt rival CTD final yr (presently beneath investigation by competitors authorities) divides investor opinion. Some see it as ill-planned and probably not probably the most cost-effective means for Topps to construct additional scale.
I’m extra constructive about that, seeing it as an opportunistic transfer that helps the enterprise construct credibility in areas adjoining to its important enterprise, comparable to promoting to architects.
Topps has a powerful market place, promoting one in 5 tiles purchased throughout the nation. That happened as a part of a concerted strategic push and it has one other plan to develop its gross sales to round £1m per day on common.
Tons nonetheless to show
However whereas gross sales are one factor, income are what matter to buyers.
Final week, Topps introduced that in its most up-to-date quarter, it had returned to gross sales development. Within the final 12 weeks of final yr, like-for-like gross sales grew 5% yr on yr.
The chief govt has introduced plans to face down and any hiccoughs in succession and handover may add additional dangers to the corporate’s monetary efficiency.
Whereas I’m glad in regards to the return to gross sales development, I can be conserving a detailed eye on the corporate’s interim outcomes a couple of months from now to see whether or not it has additionally moved again into the black after final yr’s losses.
Clearly there are a number of dangers right here. However I don’t suppose shopping for Topps was foolish. It stays a strong enterprise in an space I count on to profit from sturdy demand over the long term. So I’ve no plans to eliminate this penny inventory from my portfolio.
