Home improvements making money for building suppliers
WHO NEEDS THE bright lights of the city when you have the growing spending habits of South Africa’s rural areas? Building suppliers are punting that segment as life slowly drains out of the traditional urban market, according to a slew of earnings results reported last week. Renovating in the rural market has replaced new homes built in/near cities, says building supplier Cashbuild and unlisted brick maker Corobrik. sales are 11% higher than 2010’s first quarter. CEO Dirk Meyer says the group is targeting the low-cost housing market, which is where all the action is. Meyer says Corobrik had to reopen its Limpopo factory, and its Free State factory in Odendaalsrus is operating at 110% to keep up with demand.
Statistics SA reported last month that in January building plans passed were dominated by KwaZulu-Natal (up 21%) and Midrand tanked over the past year. From cement makers to engineers, the consensus is both the Western Cape and Gauteng are dead as far as demand is concerned.
Even struggling steel merchandiser Alert Steel’s new turnaround plan will be focused on the rural market. Although spending habits are an appealing aspect, Alert’s new CEO Johan du Toit is particularly interested by the lack of competition in this sector.
But the platteland isn’t yet a goldmine for everyone. Companies without the exposure to the home improvements market are plodding along like the rest of the ailing construction industry.
Small cap RBA Holdings, an affordable housing developer, is still reporting earnings under pressure. Its results for the 12 months to end-December 2010 (released last week) show the group made a loss for the second consecutive year. Despite the much-touted 700 000 households’ strong demand for affordable houses, constructors such as RBA are constrained by poor municipal infrastructure and are forced to construct water and roads infrastructure, thereby pricing houses out of the affordable market. Despite a headline earnings loss of 4,89c/share (an improvement on the previous year’s 11,48c), the group reported some good news: revenues increased by 24%. That will be a welcome sign of improving times for Oryx Investment Management, which put R1,67m towards a capital-raising for new property developments.
Until Government loosens its purse strings – which historically leads to private spending increases – it looks like the rural market can still offer an escape from the reality of the downturn.