Relating to investing, worth isn’t just about value. Just because a share sells for pennies doesn’t essentially make it a discount. However this week, I purchased one penny share that mixes a confirmed, worthwhile enterprise with juicy passive revenue prospects.

Moneymaking firm

The share in query is Topps Tiles (LSE: TPT).

Topps is a widely known constructing provides supplier that has been round for six a long time. It has lengthy since confirmed it might probably generate income by shifting tiles.

Final 12 months, revenues grew 8% to virtually 1 / 4 of a billion kilos. Pre-tax earnings shrank, however nonetheless got here in near £11m. Primary earnings per share of 4.6p means this penny share at present trades on a price-to-earnings ratio of round 11, utilizing final 12 months’s figures.

This 12 months has began much less promisingly for Topps. Within the first half, though revenues grew 9%, pre-tax revenue was down 70% in comparison with the identical interval final 12 months.

Regardless of that, the corporate reckons a powerful second half will assist it ship in keeping with common market expectations of £11.5m in adjusted revenue earlier than tax.

Lengthy-term outlook

However it isn’t simply the quick time period I take into account when investing. Though it has penny share standing, I feel Topps has the makings of a stable long-term performer.

It has a big community of websites, a deep buyer base of commerce patrons, and has been investing in its on-line presence via channels akin to Professional Tiler Instruments.

The corporate ended its first half with virtually £20m in web money. That possible means it might probably proceed to boost its dividend within the medium time period, even when monetary efficiency is erratic. The interim dividend was boosted 20%, for instance, though that was not lined by primary earnings.

In the end, to develop dividends, the enterprise might want to ship sturdy monetary efficiency. One danger is a weak economic system hurting demand. One other is inflation squeezing revenue margins on the group.

Whereas these are dangers, I feel additionally they assist clarify why Topps proceed to commerce as a penny share. I see such dangers as priced in already. Long term, I anticipate sturdy demand and inflation to revert to historic norms.

I’ve purchased

That’s the reason I made a decision so as to add Topps Tiles to my portfolio this week.

I’m optimistic it gives me the prospect of long-term capital development. In the meantime, the dividend yield is already enticing and I reckon there’s scope for additional development within the payout.

Dividends are by no means assured although. And given the uncertainty surrounding what is going to occur within the housing market, I don’t anticipate the approaching years to be easy crusing for Topps.

However fascinated about the years not simply months to come back, I feel Topps’ experience and powerful market place set it aside from opponents.