Cashbuild trading update looks flat

On Friday afternoon we saw a first quarter operational update from Cashbuild which looked pretty muted.


"Revenue for the company was up by 4% on the first quarter of the prior financial year. Stores opened since 1 July 2011 (new stores - 5 stores) contributed 1% of the increase, whilst existing stores
(186 stores) contributed 3%


Transactions through the tills during the 1st quarter increased by 1% contributed by new stores' growth of 1% while existing stores remained at similar levels to that of the prior year mainly due to the 5 stores closed since September 2011.


Units sold are at same levels to that of the prior year. Existing stores unit growth decreased by 1% and new stores contributing 1%."


So basically sales are the same as last year but revenue increased due to price increases. They also mentioned that margins were higher than this quarter last year but the nice growth in margins they have been seeing over the last 6 months have slowed down.

As you know, Cashbuild is one of our favoured entrances into the retail/building sector. This morning I saw a tweet from Cees Bruggemans, chief economist at First National Bank who noted that SA transfer duties are still sitting at 2008/2009 levels. This indicates that property and building activity is experiencing a very long cyclical low. Despite this, Cashbuild has experienced a great 3-4 years. In fact in August 2008 the stock was trading as low as R46. Now today it is trading at R151.75.


But it still looks cheap on an earnings basis. And at current growth rates you can see why. But like we are seeing in the US right now we expect the housing market in South Africa to start picking up. In South Africa we still have a very high percentage of informal dwellers, this needs to change. Once a house is built, be it privately or by government those home owners will immediately become potential customers of Cashbuild.


I wouldn't be surprised if this muted demand is a direct result of the strikes that have swept this country. Not only are many Cashbuild clients not getting paid but their focus has not exactly been on home improvement in the last few months. Sasha also made an interesting point the other day. In South Africa many township dwellers actually own their own homes with no debt. This presents an opportunity for Cashbuild who can sell merchandise on credit to people who use their homes as collateral. Just a thought.


We will carry on adding at these levels while we wait patiently for the sector to improve.