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Italtile defies with double-digit growth in half-year turnover, profit and dividend

Benefits from Covid-19 pandemic-induced home improvement boom.
Italtile's new generation retail store in Waterfall, Gauteng, which also includes a 'millennial' CTM. Picture: Supplied

JSE-listed tile, bathroom-ware and home-finishings giant Italtile posted a stronger than anticipated interim performance on Thursday, reporting double-digit growth in key financial metrics including group-wide turnover and profit.

Turnover was up 14% to R6.2 billion for its half-year to the end of December 2020, while its trading profit surged 38%, to R1.4 billion.

This saw the group’s dividend per share for the period jumping 35% to 31 cents, compared with 23 cents per share for its 2019 interim results.

Italtile group, which owns the CTM, Italtile and TopT store chains, has benefited significantly from the “work-from-home” trend, which has seen a boom in home improvement spending by South Africans in the face of the extended Covid-19 pandemic and related restrictions.

The group’s interim results represent a strong turnaround from its previous full financial year (ending June 2020) performance, which was negatively impacted by the initial Covid-19 ‘hard lockdown’ that saw its stores being forced to close between late March and April last year.

The trade restrictions were in place for most retail businesses, baring essential goods retailers such as grocery stores and pharmacies.

May and June trading was also affected under slightly lower lockdown restrictions. The initial lockdowns contributed to the group reporting a 7% decline in overall turnover for its 2019 full-year results (to June 2020).

With less stringent restrictions to retail trade since July, Italtile has seen a surge in sales for its half-year to the end of December.

Besides the work-from-home trend, it has also benefited from the spin-offs resulting from the surge in new home sales, on the back of record low interest rates.

Commenting on its interim results, Italtile CEO Jan Potgieter, said: “It is rewarding to report that despite the unprecedented trading environment, the group has delivered a pleasing performance for the review period, recording double-digit sales and profit growth across all of our operations.”

Read: Covid-19 no deterrent to Italtile’s R800m capex plans

Besides its retail and franchisor store network of 203 outlets across South Africa and neighbouring countries, Italtile operates manufacturing and supply-chain businesses in the tile and bathroom-ware market locally. Its retail brands target homeowners across the Living Standards Measure 4 to 10 categories.

Potgieter said that the group’s latest results were “gratifying” and noted that they were “augmented by the impact of the pandemic on consumers”.

He explained that the pandemic “has enforced time in the home and altered spending priorities” of South Africans.

Other factors he highlighted as being behind the group’s strong half-year performance include:

  • the “extraordinary response” of the Italtile team in adjusting to the new normal;
  • the group’s productivity drive and cost leadership gains across the business;
  • continued investment in technology for the future – both within the group’s factories and across its omnichannel trading platforms; and
  • the power of Italtile’s “robust strategically-integrated business model” that is volume-driven, cash generative and centred on a high-performance culture.

Italtile noted in its results statement that retail store turnover increased 17% compared with the previous corresponding period, with average selling price inflation estimated at 6%.

“Like-for-like retail store turnover improved 15%. Retail store turnover is defined as the aggregate turnover of all stores, both corporate and franchised, in the group’s retail network,” it added.

Meanwhile, the group said that within its supply chain or import businesses, it had grown sales by 25% compared with the corresponding interim period.

On its vertically-integrated manufacturing business, Italtile reported sales growth of 18% for the review period.

Italtile’s share price was down just over 2.7% in morning trade on Thursday, following the release of its interim results. However, the stock is up over 20% for the year to date, partly buoyed by its recent trading updates.

Italtile shares over a year

Anthony Clark, an independent analyst at Small Talk Daily Research, described Italtile’s interim results as a “sparkling” performance.

“The results were at the top end of its revised guidance, with headline earnings per share [Heps] rising 39% to 77.1 cents per share. But earnings were coming off a low 2019 comparative base,” he said.

“On the news, the market priced Italtile at -3.3% to R17.50 [in early trade on Thursday]. But the stock has risen by nearly 25% in the past weeks to a recent 52-week high. So, perhaps much of the good news was already priced into Italtile,” he added.

Clark noted that he issued a “Buy” on Italtile on January 26 [2021] at R14.89, and the stock ran to a recent high of R18.50 [+24%].

“But after such a heady run in a short space of time, a pause for breath is needed… The old adage of “buy on anticipation, sell on the news” played out with Italtile following the release of its results on Thursday,” he said.

He added that prospects and the “inherent operational leverage the group has should not be underestimated”.

Clark said Italtile’s prospects for the second half of its financial year “look robust”. However, he said that the lingering effects of Covid-19 and any possible third wave could temper prospects.

Listen: Italtile CEO Jan Potgieter discusses its interim results with Nompu Siziba

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