Cashbuild first half is good

This morning we had 6 month results from Cashbuild. Remember that they released a trading update two weeks ago that got me very excited about the valuations of this fabulous business. Here was my analysis of the update which also covered the financial details of the BEE transaction. I'm not going to go through that again, we will just use headline earnings per share for comparative purposes.

The results came in the middle of the range with headline earnings per share up 24%. This equated to income of 158 million from R5.6bn of revenue which had grown 9%. Per share earnings equated to 661c with 296c paid to share holders. Like I mentioned in the update, this puts the company at some very attractive valuations. If you annualise these earnings with a dividend cover of 2 (which I think is a realistic assumption) you get a forward PE of 9.2 and a dividend yield of 5.5%. This for a retailer is fantastic.

Let's look at where the growth came from. "Stores in existence since the beginning of July 2010 (pre-existing stores - 185 stores) accounted for 8% of the increase in revenue with the remaining 1% increase due to the six new stores the group has opened since July 2010. Despite the competitive environment, gross profit percentage margin increased to 22.8% during this half-year and was higher in percentage terms than the 22.3% achieved for the comparative period of the prior year. Operational expenses for the half-year remained well controlled with existing stores accounting for 6% of the increase and new stores 1%. The main contributor to the increase on existing stores is the people cost component in order to maintain and improve customer service standards."

So good management and cost cutting resulting in a company that is more efficient and profitable. And how do the prospects look? "Management remains positive about the top line trading prospects for the next quarter. The first nine trading weeks since period-end have reported an increase in revenue of 10% on that of the comparable nine weeks."

I don't want to sound repetitive because I did talk about the fundamentals behind this company in the update but I really do like the sector. This company has captured the core of the up and coming middle class in South Africa. They have situated their outlets in the right areas and got the pricing spot on. Your home and comfort is a priority and one of the first things you invest in when you get more economic freedom. Home improvement has become a South African pastime, like braaing. At these levels I would definitely be adding.