SUPPLIERS OF BUILDING materials are still flourishing. Italtile is no exception, as its interim report to 31 December shows, though there was a slowing down in the growth rate. Sales of R1,3bn were only 11% higher than the previous year; in particular, there was only 8% growth at franchised stores.
And its efficiency is shown in growth of 20% to 25% in trading profit and earnings, while a strong financial position allowed the interim dividend to be hiked by 64%, which is still three times covered. Italtile expects to maintain earnings growth at those levels in the second half. OPPORTUNITIES • Both housing construction and the refurbishment market should remain strong. Last August it introduced a private label credit option, administered by Edcon. That should increase its potential market. Operations in Australia, always a bugbear for SA retailers, are now modestly profitable. RISKS • The building supplies market is cyclical and at some stage must experience a downturn. High profits have attracted several powerful new competitors, whose entry could depress margins. If the rate of first-half earnings growth is indeed maintained in the second half, and the final dividend is also three times covered, you’re looking at annual earnings per share of around 1 620c and dividends of 540c. At 22 600c, that’s a forward price:earnings of 14 and yield of 3,3%, leaving the share vulnerable to either a profit setback or general share market weakness.