Final week was an fascinating one for homeowners of 1 well-known penny share, together with myself. Sure it has fallen 45% over 5 years and the biggest shareholder is reportedly sad about how the enterprise is being run. However administration set out causes that recommend the 6%-yielder could also be undervalued and will probably take off.

The penny share in query is Topps Tiles (LSE: TPT). The title is well-known to many people, whether or not as prospects or just because we have now seen the corporate’s showrooms in some unspecified time in the future. In any case, Topps sells one in 5 tiles purchased within the UK.

Robust ambition, constructing on a confirmed technique

That was the results of a technique to goal for 20% of the market that the corporate set and efficiently delivered over current years.

Because it crowed this week, the corporate is now aiming for £365m of annual gross sales. Not solely is that 1,000,000 kilos’ value of tiles a day on common, it could symbolize 47% development from final 12 months’s adjusted revenues. That’s bold on any measure and particularly provided that adjusted income final 12 months fell 5.4%, albeit from a report excessive.

An ongoing digital push and the acquisition of elements of a failed competitor (at present present process regulatory scrutiny) may each assist propel Topps’ gross sales ahead.

Topps’ efficiency isn’t the tops

Nonetheless, Topps has dissatisfied in additional methods than one. Not solely did adjusted revenues fall final 12 months, however a £6.8m revenue after tax the prior 12 months become a £16.2m loss earlier than tax this time round. In the meantime, adjusted web money shrank from £23.4m to £8.7m.

Disappointingly, the dividend per share fell a 3rd to 2.4p. Given its penny share standing, that also equates to a 6% yield. After its weak interim outcomes, I had thought there could also be a dividend lower and certainly it got here to go. Nonetheless, I feel that lower is dangerous for investor confidence and helps clarify the 19% fall within the Topps share price up to now in 2024.

The corporate factors to a troublesome market and the cyclical nature of tile demand is certainly a danger I see, particularly if the housing market slows. It additionally identified final week that, though gross sales have declined, it has been rising general market share. The acquisition I discussed above ought to assist that.

Nonetheless, the enterprise has seen falling gross sales, fell into the crimson final 12 months and has decreased its shareholder payout. These are not often indicators of an organization working at its finest.

I’m hanging on

Thus, it was no shock that Topps’ largest shareholder continued its long-running dispute with the corporate about how administration is doing.

With the utmost stake allowed with out mounting a takeover bid, the long-term shareholder is understandably centered on Topps’ efficiency. I feel that would assist the enterprise over time (if it listens).

I proceed to love Topps’ strategic ambition, sturdy market place and comparatively simple enterprise mannequin.

So though I see a danger of additional weak efficiency, I contemplate the penny share nearly as good worth from a long-term perspective and plan to hold on to my holding. I feel it has fallen additional than is merited by its long-term prospects.