Bogs and kitchens are right here to remain, which is sweet information for the long-term well being of the tile trade. However over the medium time period, demand for tiles ebbs and flows. That has dampened investor enthusiasm for one penny share I personal, Topps Tiles (LSE: TPT).

Regardless of providing a 7.6% dividend yield, the share has fallen out of favour with the Metropolis and is now 28% cheaper than it was 5 years in the past.

But this month it quietly pulled off what might but transform a enterprise masterstroke, in my view.

Confirmed enterprise mannequin

Topps had been constructing its measurement lately. Final yr’s gross sales revenues had been its highest ever. The corporate now sells one in 5 tiles throughout the nation.

However the tile market has been struggling recently. Topps estimates that it’s 10%-15% down in comparison with final yr.

Topps has been taking market share. However not all rivals have executed as properly. CTD Tiles Restricted went into administration final week. Topps has acquired the model, 30 of its retailers, chosen inventory, and associated mental property from the directors. Whereas it didn’t disclose phrases for the deal, given the circumstances I anticipate that the price was low cost.

The transaction stops different rivals getting these property. It ought to increase Topps’ revenues and provides it extra economies of scale. The retailers it acquired had gross sales of round £20m final yr, equal to over 7% of Topps’ complete revenues.

However what I feel is most enjoyable right here is the enlargement of Topps’ architectural and designer enterprise in addition to its expectation that the deal gives “a meaningful entry into the housebuilder segment”.

The actual worth of the acquisition may not be in its retail parts, however in including vital scale to Topps’ bulk commerce gross sales.

Doubtlessly transformative deal

That brings dangers, comparable to doubtlessly lean revenue margins in comparison with the retail enterprise.

However Topps shouldn’t be taking up any new debt to fund the deal and I feel it might add substantial gross sales quantity in coming years. It additionally brings in experience to the corporate in areas the place it has historically had a weak presence. In the meantime, the present Topps enterprise continues to profit from a powerful retailer community and digital footprint in addition to a big buyer base.

Promoting extra into the constructing commerce might mitigate a few of the seasonal dangers current within the present enterprise mannequin, particularly given the anticipated robust housebuilding exercise within the UK over coming years.

Integrating the non-retail enterprise could possibly be tough but when executed properly – and Topps has a observe report of delivering on its strategic aims – it could possibly be a significant development driver for the corporate.

As its penny share standing suggests, Topps nonetheless has lots to show. Ongoing weak demand is a danger to gross sales and income and integrating the acquisition will take effort and time.

However I feel this was a superb strategic transfer and plan to hold onto my Topps tiles shares.