Cashbuild staggers under impacts of looting and KZN floods

‘For me [it’s] a very tough call to be investing in a company…that is at the mercy of the consumers of Africa, the majority of whom don’t have jobs’: Kruger International CEO Mia Kruger.

PETRI GELDENHUYS: Our first guest this morning is Mia Kruger. Mia, good morning and thank you for joining us so early.

MIA KRUGER: Good morning, Petri.

PETRI GELDENHUYS: Thank you for your time. We’re going to chat a little bit about Cashbuild. They put out a trading update on Wednesday, or yesterday, projecting lower-than-expected revenue. It’s a bit surprising, to tell you the truth. I thought that after the lot of the damages have been done, Cashbuild would’ve done pretty well as people are rebuilding, that kind of thing. Is this still effects from the looting last year or–?

MIA KRUGER: Well, when we looked at the trading update it was pretty clear that they are still struggling with the impact of the looting that they saw in July. They had 36 of their just over 300 stores impacted by looting. On that, they’re still at this stage rebuilding about five of them. They’ve decided to close a couple, and they’ve even given us a comparison excluding these looted stores from their expectations around their earnings decrease.

The fact is that these numbers make it very clear to us that this looted area for them – KwaZulu-Natal and where they had the looting impact – was really severe for the company. You can imagine that being the case if more than 10% of your stores on the ground have been really badly impacted by such an event.

So this just is really the nature of Cashbuild.

Cashbuild is located in areas that are often informal settlement areas and areas where people pay with cash, which has been the real driver for this business and has put Cashbuild on the map as the preferred sort of store where people who are likely to do renovations at home themselves have been buying all their supplies.

But it just also shows us the South African market where people are struggling to find jobs and don’t have a very strong income – we know how high our jobless rate is in South Africa – that this area that had picked up around the Covid time when people had a lot of time at home, where they did get grants and spend money on these sorts of things, didn’t spend money on much else, has now really subsided and has normalised from that high base. It also just shows us how bad these impacts like looting, like joblessness and the tough economic conditions in South Africa, are really for companies on the ground.

PETRI GELDENHUYS: Just to sort of organise, in my own head what you said, it makes sense. So they had a bit of a boost during the Covid time, because people were at home, people had time on their hands and wanted – because you spend a lot more time at home – to do renovations. That was a bit of a tailwind for Cashbuild. Well, that tailwind has now gone. So they’re coming off a higher base and sort of returning to normal. Obviously there is still the big impact that KZN riots had last year.

My question is how much does inflation impact, because I think they mentioned something like their prices, their products rose something like 8.1%.

MIA KRUGER: That’s right. They had price inflation of course as well, and that’s something that we are seeing globally at this stage.

It is not possible for companies like Cashbuild, even, to pass this inflation on solely to the consumer any more. So they are feeling a pinch on the inflation side; they had price inflation of 8.1%.

So it wasn’t quite clear to us exactly what part of that they could pass on, but price inflation normally tells us that some of it has been passed on to the [buyer] and some of has been absorbed by the company if it’s this high.

So the big thing here is the fact that the looted areas have been impacting the company quite substantially. It’s still in the numbers and it’ll probably still be in the numbers for the next year.

PETRI GELDENHUYS: Maybe a bit of a callous question, but do we think that there’s going to be any kind of impact on Cashbuild’s earnings once this flood situation in KZN is under control and people start to rebuild and recover from that?

MIA KRUGER: Well, I think it could be a double-edged sword, due to the fact that Cashbuild has numerous locations located in these areas that are impacted.

PETRI GELDENHUYS: A huge amount of damage done now, again.

MIA KRUGER: That’s right. So they could themselves be badly impacted. I haven’t seen any news on their impact due to the flooding in KwaZulu-Natal and the Lesotho area, but we will most definitely hear from these companies as the weeks go on.

Like you say, the other side of the sword could be the fact that people will be rebuilding, so [the flooding] could be beneficial as well as detrimental to the company.

PETRI GELDENHUYS: Okay. A little early to tell for now. In terms of a sort recommendation here, do you think that Cashbuild would be something, if you’re not invested with [it], worth getting into now, or do you think we [should] just stay a little patient and wait for a better opportunity?

MIA KRUGER: Even though the fact that Cashbuild is a very South African- and African-focused business, which is ideal to be invested in, in an emerging market like South Africa, where they focus mainly on cash sales and on value-add through their product supply, it’s still for me a very tough call to be investing in a company like this that is at the mercy of the consumers of Africa, the majority of whom don’t have jobs. That unfortunately is the reality.

PETRI GELDENHUYS: Right. Well, thank you very much for your insights this morning, Mia. It was very nice talking to you. Thank you for your time. I hope you have a lovely day.


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