WALL-TO-WALL GROWTH

Finweek English Edition - - Companies & markets - MICHAEL COUL­SON

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.

ITALTILE

Source: I-Net Bridge

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