Tough market conditions that saw Cashbuild battle with flat organic growth in the 2017 financial year, have continued into the first half of 2018.
As one of Southern Africa’s oldest and biggest suppliers of building materials and related products, it reported revenue up 5% to R5.4 billion for the six months to December 31, 2017.
Revenue was supported by the addition of 39 new stores since July 2016 and the acquisition of Build It Hunters Retreat last August and Buffalo Building Supplies last September. Both businesses have been converted to P&L Hardware stores in line with Cashbuild’s strategy for growing the P&L Hardware brand.
With flat growth in its rural and township heartlands, the firm is pursuing growth by increasing its store numbers, exploring alternative business models, generating additional sales channels, expanding into additional African countries, like Zambia, and acquisitions.
The newly acquired businesses contributed revenue of R25.4 million in the period.
Despite being carefully managed, expenses grew faster than revenue, wiping out gains from ‘other income’ and operating profit fell 10% to R324.9 million. In addition the newly acquired businesses did not perform, contributing a net loss of R0.4 million to the group for the period. Earnings per share fell 8% to 1092.2 cents.
Management notes though that, had the full six-month results (for the acquired businesses) been included in the results, the total revenue and net contribution would have been R43.5 million and R1.1 million respectively.
Cassie Treurnicht, portfolio manager at Gryphon Asset Management was not impressed with the results. “An 8% decline in earnings is disappointing given the fact that Cashbuild trades off a P/E of 23.5x. I’m surprised the share was only down 5.08% on the day [that results were released].”
Having said that, the balance sheet is as strong as ever with cash and cash equivalents increasing by 4% to R1.03 billion and working capital being managed well.
“I get the sense that this business is desperate to acquire growth,” Treurnicht adds. “The period ending 31 Dec 2017 must have been one of the worst trading environments for Casbuild ever. In that time they bought two businesses that performed very poorly. This will cause the ROE to come down.”
According to management the second half looks more promising, with revenue for the first six weeks was up by 7%. This will be off a soft base though.
Cashbuild declared an interim of 496 cents (2016: 540 cents) per ordinary share out of income reserves.