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Cashbuild surges over 7% on solid FY performance and hefty dividend

Driven largely by home improvement boom linked to pandemic.
The work-from-home trend and an increase in government grants for lower income earners boosted spending on home improvements. Image: Moneyweb

The share price of Cashbuild – South Africa’s largest hardware retailer – surged R21.02 or 7.39% to close at R305.50 on Wednesday on the back of a solid financial performance for the year ending June 27, 2021.

The group reported a spike in full year profit and declared a hefty dividend, driven largely by the home improvement boom linked to the Covid-19 pandemic.

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Cashbuild posted a 152% increase in headline earnings per share (Heps), the main profit measure in South Africa, to 2 872.6 cents for the year from 1 138.5 cents in the previous period.

This saw it declaring a final dividend for its shareholders of 2 211 cents, up significantly from 272 cents paid in the prior year.

The group reported a 100% increase in operating profit to just over R1 billion, compared to R520 million in the previous year. It also posted a 25% increase in revenue to R12.6 billion, from R10 billion in the previous year.

Consumer buying power

The Covid-19 pandemic has clearly worked in the group’s favour as the work-from-home trend adopted by a substantial portion of the country’s workforce, coupled with an increase in government grants for the lower income segment, left consumers with more money in their pockets to spend on home improvements.

Read: Home improvements boon evident in the figures

Senior equity analyst at Sasfin Wealth, Alec Abraham, told Moneyweb that tight control over the management of the business, smart choices, and increased buying power of consumers was the formula to the company’s success.

“The government support that was given to the grant recipients and the Ters [Temporary Employee-Employer Relief Scheme] benefits certainly helped to cushion the [Covid-19] blow and I think a number of people that didn’t lose their jobs used that money as a windfall to improve households,” he said.

“That is certainly the case with higher income groups, where people who didn’t lose their jobs actually were better off in many ways during the pandemic, spending more time at home and investing in the home too,” added Abraham.

Unrest

Although the impact of the recent civil unrest and looting that occurred in KwaZulu-Natal and Gauteng in July was not reflected in this round of full-year results, group revenue for the first six weeks post-year-end declined by 10% compared to the same period in the previous year.

The riots left 32 Cashbuild and four P&L Hardware stores looted and damaged.

Acquisition blocked

Cashbuild’s latest financial performance comes despite its planned purchase of The Building Company (TBC) from Pepkor for R1.07 billion being barred by competition authorities.

Read: Cashbuild forced to can The Building Co acquisition from Pepkor

The deal would have solidified Cashbuild’s retail dominance in underrepresented areas in the Western Cape, Eastern Cape and KwaZulu-Natal.

The Competition Commission blocked Cashbuild’s acquisition of TBC saying the merger would make Cashbuild a dominant supplier of building material, giving it an unfair trading advantage, particularly over its smaller suppliers

“We are disappointed with the termination of the acquisition of The Building Company as we firmly believe that this transaction would have aligned with Cashbuild’s vision of being the preferred supplier of building material and associated products and services across all market segments,” said Cashbuild chief executive Werner de Jager.

“Cashbuild will however continue to pursue growth opportunities while still maintaining its commitment to its customers in the South African and neighbouring markets, while adding value to shareholders,” he added.

Listen to Fifi Peters’s interview with Cashbuild’s CEO on the group’s latest results here:

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Cashbuild is an awful company, visit any oof their stores and you’ll see why. how they made it so far is anyones guess.

End of comments.

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