Cashbuild trading update

Yesterday we had a trading update from Cashbuild, one of the darlings of the market for the last ten years. In fact they are the 6th best performer on the JSE over the last decade boasting a 3000% return. Fantastic. These guys found a gap in the market and took it with both hands. It seems so easy in hindsight. We have the majority of the population starting to reach for economic independence. Cashbuild are a retailer of building products at reasonable prices. Obviously the execution part took loads of hard work. The company has been listed since 1986, Rome wasn't built in a day, they have done the hard yards.

The company has 191 retail stores locally and in 6 Southern African countries. Their trading update says that the company is expecting headline earnings per share to increase by 130%-140%. Before you fall off your chair this is compared to a period where a big BEE transaction took place. "In terms of a special resolution adopted by shareholders on 6 December 2010, shares to the value of R50 million were repurchased by the company from the Cashbuild Empowerment Trust ("the Trust"). The value realized by this transaction was distributed to the beneficiaries of the Trust." See that this transaction cost the company R50 million rand in earnings for the period.

Including the deal earnings per share came in 275c for the half. If you do not include the deal the trading update indicates a 20%-30% increase in earnings per share. A more sensible number but still great growth for a company who, as I mentioned earlier, has managed to grow substantially over the last decade.

So what do the valuations look like for this retail company that is geared towards the building sector? The update suggests earnings to come in at around 646c for the half year. The stock trades at R118.85. This update has all of a sudden deemed a stock that used to trade at a demanding PE of 17 to look very cheap. If you annualise this half we will get a forward PE of 9.2 which Sasha assures me is the historic norm for this company. (And others in the sector - Sasha)

When you compare it to other retailers it looks exceptionally cheap. I like the sector, I like the long term fundamentals behind the Cashbuild consumer, especially when you see how all the banks are growing their unsecured loans (not just African Bank). Now that the company looks cheap I think it is a compelling buy.