High interest rates and increased costs for food and fuel have crimped discretionary spending, dampening the growth prospects of home building and renovations companies.
On Wednesday, JSE-listed building material company Cashbuild reported a sharp drop in earnings in the half-year to December as consumers cut back on new building projects and renovations, and it warned that trading for the rest of its 2023 financial period will remain subdued. Cashbuild said subsequent to the half-year period, group revenue for the first six weeks of this year is 8% lower than the prior year’s comparative period.
In February Italtile also reported a decline in profits for the six months to December for similar reasons.
During the pandemic, when consumers were housebound, Cashbuild, along with competitors, enjoyed a boom as those working from home and benefitting from lower interest rates spent money on refurbishing.
Chris Gilmour, an investment analyst at Salmour Research, said traditionally the do-it-yourself (DIY) market benefited when the housing market was in the doldrums.
“DIY did well during the pandemic but now as [people] return to the office, that has evaporated,” he said.
Italtile said in a statement when it released its half-year results two weeks ago that foot traffic and transaction numbers across the industry have declined “to lower levels than pre-pandemic, which is largely a function of difficult economic conditions and unwinding of the pandemic-related home improvement boom”.
Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management, said the prospect for building materials companies does not look good. “Commodity prices are falling and manufacturing output is faltering,” he said.
“Don’t expect people to earn big salary increases and bonuses over the foreseeable future. And this will spill over to the secondary and tertiary sectors (such as manufacturing, distribution and services).”
Cashbuild CEO Werner de Jager said the company is back to levels seen before Covid. “It’s been a tough period. Consumers are under extreme pressure and don’t have much money for building.”
He said products that recorded growth during the half year to December were paint, floor tiles and ceilings. “Typically items that indicate smaller projects,” he said.
Credit to shop at Cashbuild, which is offered by Nedbank, was also down, said De Jager. “Affordability criteria is the biggest reason why customers are not being approved,” he said.
However, retailer Pepkor, which owns building brands such as Timbercity and Tiletoria, said in the three months to December its companies “outperformed the market” based on an improved product range and product availability.
To protect its market share De Jager said in the next few months Cashbuild’s “focus will be on pricing as customers are under pressure”.
But Gilmour said Cashbuild was already very cheap, “so not much scope to cut prices here”, while Builders is a “lot more expensive, so they can still drop prices”. He said there is huge competition at the low end of the market.
Italtile said in the context of finite disposable income, consumers are increasingly cost-conscious and this is reflected by a marked responsiveness to promotions and deals as well as the trend to buy-down, which was most evident in brassware, adhesives and sanitaryware.
In addition to the lull in activity and decline in demand for hardware, Cashbuild is concerned about the increase in independent competitors and in unregulated, inferior products in the market, saying that it “will also continue to negatively impact our business”.
These include products such as corrugated iron with low zinc quantity, which De Jager said does not last long and will need to be replaced in the short run.
Some products don’t comply with regulations.
“It’s a difficult one because customers are under pressure and hence buying the products. It’s an impossible task to try and police it,” said De Jager.
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