Cashbuild results, stock looks good value

I've been following this one quite closely through its recent sales and trading updates but finally Cashbuild have released their full year earnings for the 53 week period ended 30 June 2012. The numbers came in line with the trading update as earnings were normalised from a big BEE transaction last year.


This meant that earnings were up 88% from last year but on a normalised basis which also excludes the 53rd week, earnings were up a healthy 26%. The final number came in at 1260c with a full year dividend of 569c being declared. The stock which now trades at R155 has an historic multiple of 12.3 with a dividend yield of 3.7% before taxes. Compare that to other retailers like Massmart (P/E 30), Shoprite (P/E 26), and Spar (P/E 22) who all have building divisions and you can see that Cashbuild offer some value. Of course these three are big businesses with lots of other divisions and aspirations but you get my point. For the record the whole retail index has a P/E of 18.63 (via Bloomberg).


So why is Cashbuild so cheap? It is a very competitive division with the likes of BuildersWarehouse, Builders Express, Build It, Mica and even Makros and big supermarkets competing for clients. They are also quite a conservative bunch with only 4 new stores being opened in the period. That is because their location has been so vital to the company's success in the past. You may not see many Cashbuilds in the traditional more affluent areas but nearly every township will have one. In their prospects column they say they have experienced a 5% growth for the first 9 weeks of the financial year which they are disappointed with. This is maybe why the stock has pulled back of late.


You will already know that I like the stock. Even though the environment is competitive I feel there is more than enough growth available in the sector. Look at all the strikes we have been seeing recently, many of which have focused on living conditions. One of the first things people prioritise when they get an increase is their living conditions. It also adds value to an asset which is sustainable and encouraged.


Even when times are tough people substitute buying new homes for home improvement. In a developing economy like ours with such a massive informal housing sector and at historically low interest rates, Cashbuild who are one of the first movers in this industry and have many of the best locations should find themselves in a long term sweet spot.


The balance sheet looks strong, they managed to grow margins from 22.5% to 23.3% in a tough environment, they pay a good dividend and we do not mind a conservative management team. This makes them a very attractive takeover target from the likes of a big retailer like Shoprite or JD Group or even a Micro lender like African Bank who are looking for sale points. We are happy to add at these levels.