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Cashbuild results
Remember the trading update we had from Cashbuild last week? Well, the results came out this morning which reiterates what we were already told. They did a share buy-back and distribution to BEE participants which of course affected earnings but excluding this once off, headline earnings per share were up 28% for the year. This was in the middle of the range from the trading update. Now we know that these guys are cash retailers in the building sector, selling mostly building materials. But in this results presentation they also elaborate who their clients are which I think needs repeating. "Our customers are typically home-builders and improvers, contractors, farmers, traders, large construction companies and government-related infrastructure developers, as well as all other customers requiring quality building materials at lowest prices."
See how broad based they are. The large scale stuff from government and large construction companies is fairly new but is certainly growing. If you get your pricing right, the big clients will come. Revenues for the year were up 6%. 3% of that was attributable to new stores while the other 3% was organic growth. This equated to headline earnings per share of 916c. After the R50 million cost of the BEE transaction the company brought in 668c per share. The stock trades at 9500c and a historic PE of 10.4. A total dividend of 296c will be paid for the year giving us a yield of 3.1%.
I must admit, I really like this company. I am a firm believer that the construction sector will turn but I am not the biggest fan of the actual building companies. I prefer their suppliers who experience less contract risk, less competition and higher margins. In fact, gross profit margin for Cashbuild was increased by 1% for the period to 22.5%. These guys are also defensive in nature because they sell low cost materials to private individuals. When times are tough consumers stop buying houses but instead focus on improving the homes they already live in.
This explains why they have managed to grow earnings in a sector that has been contracting. In the prospects they don't give away much but mention that revenue is already up 8% for the first nine trading weeks. Nice. I'm not saying these guys are going to be a double bagger next year. The sector is still suppressed and banks are still very weary. I mention the banks because Cashbuild are a cash retailer. Consumers will have to borrow from the banks if they cannot pay cash up front (which is often the case when doing home renovations). The defensive nature of the business allows you to hold onto this stock patiently while you wait for the sector to turn. Unfortunately liquidity is an issue.