Cashbuild, Byron catches up with the CFO

This morning we received interim results from Cashbuild for the period ending December 2012. I was planning on going to the results presentation tomorrow morning but unfortunately something came up and I had to cancel. I wanted to go because the company are not very forthcoming in their results commentary, leaving a few unanswered questions. Fortunately I managed to get hold of the Financial Director Etienne Prowse who was very helpful. We will deal with the commentary later, let's look at the numbers first.


As the update in January suggested, sales were pretty flat. Revenue was up 2% on the back of 7 new stores but same store sales were down 2% on the comparable period. During the 6 month period 12 stores were refurbished and 4 were relocated. Cashbuild have always been adamant on the best locations so capital input on existing stores or finding prime locations is just as important as building new stores.


Headline earnings per share were down 1% to R6.50 and a dividend of R2.96 was announced. Based on last year's numbers the second half was slightly lower than the first. I would expect earnings to be flat for the year which would mean full year numbers of around R12.50. The dividend should also be similar, the company is financially sound and there are no big capital requirements in the next six months that I can see. That came in at R5.70 last year. Trading at R131.40 the company affords a forward P/E of 10.5 and a dividend yield before tax of 4.3%. Those seem like sound fundamentals.

The biggest question of course is why the company is not growing sales? Yes the retail environment is tougher than a year ago but we are still seeing solid growth. This is where my conversation with the FD brought clarity. He said that the best comparison amongst competitors is Shoprite because they target similar customers. If you exclude inflation and the Africa division Shoprite sales were also slow. The retail building industry has had less price increases due to inflation but has felt the effects of inflation indirectly.


Rising costs in necessities such as electricity and food have directly impacted the pockets of Cashbuild clients. The lower LSM groups feel it the hardest unfortunately. I would also imagine that the banks slowing down unsecured credit has also had a negative impact on sales. All of these issues come back to the state of our economy and how the labour issues of 2012 impacted GDP growth and the Rand.


My thesis however remains unchanged. We still have massive informal housing in South Africa which needs to be converted to formal. Once these houses are built the occupiers immediately become Cashbuild clients. It also fits into the aspirational consumer theme. Not only do people aspire to improve their homes but it also improves an asset for future sale. It is a much better financial decision than buying a new car.


The housing market is still waiting to turn, once that happens Cashbuild, who are defensive during tougher times because people renovate as opposed to build new houses, will be positioned for even more growth. I feel the South African consumer will bounce back and Cashbuild are a great entry to benefit from that. Now is the time to be adding to this stock.