Cashbuild rolling out the barrows

Posted On Friday, 08 April 2011 02:00 Published by Commercial Property News
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Were it not for a BEE transaction, Cashbuild’s operating profit for thesix months to December 2010 would have risen a rather dramatic 43%, to R167m.

Pat Goldrick CashbuildWere it not for a black economic empowerment (BEE) transaction, Cashbuild’s operating profit for the six months to December 2010 would have risen a rather dramatic 43%, to R167m.

The group, SA’s largest retailer of building materials, reported a decrease in operating profit of 1% to R116m. Its gross margin improved from 20,3% to 22,3%. This despite the sharp drop in demand for materials caused by the recession and selling price inflation of only 2%. Revenue rose 7%, to R2,98bn, while earnings per share, at 275,2c, were 24% lower.

The BEE transaction entails the repurchase of shares worth R50m from Cashbuild’s staff empowerment trust, which Cashbuild initiated in 2005 for all its employees.

The trust owns 10% of the company’s issued shares and its R75m debt was funded by an interest-free loan from Cashbuild. Including capital growth, but excluding the R50m payout, the trust is valued at R137m.

Cashbuild CEO Pat Goldrick says R28m in dividends has been distributed to beneficiaries since 2005. The additional R50m will be distributed to its 4500 staff in tranches over the course of the year.

The company’s results have been positively received, in the light of the downturn in the construction sector and the drop in consumers’ disposable income.

It has grown its footprint to 192 stores, and opens on average 10 stores a year. It operates in SA, Namibia, Lesotho, Botswana, Swaziland and Malawi, and its stores are spread widely between cities, towns, townships and rural areas.

“The recession has affected the availability of new stores, but we managed to open four stores in the past six months, with another four expected by year-end,” Goldrick says. About 40 new outlets are part of its three- to four-year plan. New stores accounted for about 3% of revenue growth.

Goldrick says he is satisfied with Cashbuild’s performance in a low inflationary environment. But he says it has been a consumer’s market and trading conditions are still tough.

Cashbuild’s strength is that it is not dependent on a few large contracts. Its customers are 14m home-builders and renovators, farmers, and even large construction companies and government-related infrastructure developers. It sells to thousands of “bakkie builders” who support the low-income housing market in rural areas.

Goldrick says that for the first nine trading weeks after year-end, revenue increased 5%, compared with the same time last year. But he expects gross profit percentage margins to come under pressure during the second half.

Analysts have generally been complimentary about Cashbuild’s rural target market of cash-paying customers. Highincome earners, who often prefer credit, are susceptible to interest rate fluctuations and liquidity constraints. These concerns would also affect other homeimprovement retailers like Italtile and Massmart’s Builders Warehouse, which present Cashbuild with some competition.

However, competition from Spar’s Build It, which is embarking on a rural expansion programme, could present a threat to the group. Build It added 10 stores in 2010, taking its total number of stores to 260 by year-end. A further 18 stores are expected to open in 2011.

Cashbuild’s high return on equity, strong cash generation and balance sheet are indicative of the company’s strength and potential. Analysts feel its niche focus of building supplies for the lower LSM segment should sustain growth in the medium term. Trading on a historical p:e of 10,9 and a dividend yield of 2,9%, the share offers value and they recommend it as a buy.

Source: Financial Mail

Publisher: I-Net Bridge
Source: I-Net Bridge

Last modified on Friday, 28 June 2013 01:28

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