Founded by the late Albert Koopman, Cashbuild was established in 1978 as a building materials cash-and-carry wholesaler catering specifically to the low-income consumer market. The company was started as a wholly owned subsidiary of Metro Cash and Carry.
The first store opened in King William’s Town in December 1978. Since then, Cashbuild has continued to open new stores under the direction of a board of directors. In 1986 the company listed on the JSE within the wholesale and retail sector. In 1995 the decision was made to move from wholesale to the retail business Cashbuild is today. Cashbuild is now one of the largest retailers of building materials in Southern Africa.
It had a few speed wobbles over the years, but overall it has been a stable and consistent performer. Now, however, it is struggling a bit in the constrained consumer environment.
Cashbuild sells directly to cash-paying customers through its 318 stores in SA, Namibia, Lesotho, Botswana, Swaziland, Malawi and Zambia. It employs 6,170 people and its main competitors are Builders (part of Massmart) and Buildit in the Spar group.
Despite having been listed for 36 years, it is still relatively small with a market capitalisation of only R4.6bn and revenue of R11.1bn.
Financial 2022 to end-June 2022 was a tough year for Cashbuild and the group ended up going backwards in a number of key metrics. It was not helped by the looting that occurred during the riots of July 2021 in KwaZulu-Natal and parts of Gauteng.
Revenue decreased 12% to R11.1bn and gross profit fell back by 14% to R2.9bn. Gross profit margin declined slightly from 26.9% to 26.3%. Operating profit declined 16% to R876m, taking the operating margin down from 8.2% to 7.9%. Net financing costs rose 25% to R89m, but the real damage in the income statement was caused by the massive increase in the tax rate from 30.8% to 39.7%.
This effective tax rate is due to withholding taxes on foreign country dividends declared during the year. This left earnings 29% down at R479m, with headline earnings per share (Heps) 31% down at 1,929.4c with a dividend per share of 1,264c. The dividend fell 57% due to the 2021 dividend being abnormally high with a 100% payout. That was an exceptional year, and the TBC acquisition did not go through, leaving significant spare cash reserves.
Directors’ emoluments were reduced significantly, though these directors appear to have been compensated to an extent by the vesting of share-based payments. Nevertheless, the guaranteed portion of their packages reduced substantially last year. Basic salaries of executive directors only rose by less than 1%, while bonuses were slashed by 89%. Directors and senior management understand that if certain profit criteria are not met, incentives suffer.
Cashbuild’s share price peaked at more than R500 per share in March 2018, since when it has been in largely secular decline. The new financial year has not started off especially well for Cashbuild, with group revenue for the first six weeks 3% down on the comparable period in 2021. For the first three months, revenue was 4% down compared with the first quarter of 2021.
Conditions are going to remain tough in the DIY sector and the purple patch that it enjoyed during the depths of the pandemic, when people were feverishly renovating their properties in the so-called “homebody economy”, are long gone.
Cashbuild is going to have to fight tooth and nail for every bit of business that it can get, though being a predominantly cash retailer places it in a fairly resilient position in the face of a rising interest rate background.
The tax rate should also be a lot lower than 39% this financial year. But the share price is unlikely to get anywhere close to its former highs any time soon, so the next couple of years could be relatively lacklustre. At the current share price of R185, Cashbuild’s PE ratio is 9.7x, which seems fair under the circumstances.
• Gilmour is an investment analyst.
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