Cashbuild has tougher times to weather

Posted On Friday, 12 February 2010 02:00 Published by Commercial Property News
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Building materials retailer Cashbuild had been faring admirably throughout the recession.

Pat Goldrick CashbuildBuilding materials retailer Cashbuild had been faring admirably throughout the recession — at its year-end in June the company reported revenue up 25%. Since then things haven’t been going as swimmingly, suggesting that defensive retailers whose sales were supported by a resilient rural economy may be feeling the pinch.

In a recent trading update the company reported revenues up 8% for its second quarter — October to December.

“This was a good result in a tough environment,” says Gryphon Asset Management chief investment officer Abri du Plessis “The economic environment has been tougher than people expected — particularly over the past three months, when many expected some light.”

The result is lower than the 10% growth in revenue reported for the first quarter, July to September, and than the 18% reported between April and June, when Cashbuild first remarked on the slowdown in revenue growth.

The retailer has fared well by sticking to its knitting and staying away from risky credit offerings. It has a large rural footprint and its biggest customers are individual home owners and “bakkie builders” — people who have been unaffected by rising interest rates — though the company also supplies farmers, traders and government- related infrastructure developers.

“We have a very simple business,” said CEO Pat Goldrick at the time of the company’s annual results. “You must make sure you supply your customer with the right product at the right price and the right quality, and you must always have stock.”

The company has also ensured fresh sources of growth by opening new stores consistently through the recession — 27 stores have been added since July 2007.

“The rural areas have been propped up by social spending,” says Du Plessis. “But because there has been no growth in social spending contributions, top-line growth will be harder to achieve.”

Unemployment is also a concern as workers who, like miners, send cash home, find themselves without a job. Though Cashbuild has middle-class and top-end customers, it’s possible that its growth will be outstripped by more cyclical counters, like Massmart’s Builders Warehouse and Spar’s Build It, which are targeted at the higher end. “They are likely to enjoy faster growth as the impact of the interest rate cuts kicks in 12 months after the first cuts were made,” says Du Plessis.

Cashbuild, which managed for so long to keep its costs under control, is now finding its margins squeezed. “Operating expenses are growing ahead of revenues,” says Coronation Fund Managers portfolio manager Alistair Lea For instance, the costs involved in the company’s free delivery service to customers within a certain radius of shops would have gone up; and it awarded above-inflation salary increases last year.

Gross margins are also under pressure because some major suppliers have increased their prices. Higher electricity and diesel costs forced PPC to put through big price increases recently. Cashbuild, with a 14,5% share of the national cement market and a 22% share of the Gauteng market, is unlikely to have passed the full increase on to its customers.

Though times are likely to be tougher for Cashbuild, nobody underestimates the ability of its management to weather the difficulties: “Its time in the sun may be dwindling a little,” says Lea, “but this is a good business with a management team that has proven itself through the years.”

Last modified on Tuesday, 09 July 2013 23:01

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