Finweek English Edition - - HOUSE VIEW - BY WAR­REN DICK

THE MAR­KET AP­PEARS so de­void of at­trac­tive prospects that when a com­pany with a rea­son­able growth pro­file and a solid fi­nan­cial po­si­tion re­ports good re­sults the share price t akes of f i nto the strato­sphere. This was the case for Cash­build: its op­er­a­tional up­date for the half-year end­ing De­cem­ber 2014 came on the 21 Jan­uary. By the ti me i nterim re­sults were re­leased on the 3 March, the share price had risen 26% to R226/share. (It is now at R242/share.)

The com­pany’s one neg­a­tive is it s ex­po­sure to the con­sumer cy­cle. But make no mis­take – this i s a n exce pt io n a l op e r a t o r. Rev­enue for the half year rose 12% to R4bn, with 6% com­ing from ex­ist­ing stores and 6% from new stores. Sell­ing in­fla­tion was just 3.4%, which meant both gross (22.94% to 23.73%), and op­er­at­ing profit mar­gins ( 5.38% to 6.3%) in­creased. HEPS rose by 32% to R7.97/share.

The com­pany’s busi­ness model − sell­ing build­ing sup­plies for cash − means it has a neg­a­tive cash cy­cle. So it gets paid by cus­tomers be­fore hav­ing to pay sup­pli­ers. The out­come i s cash gen­er­a­tion of gi­gan­tic pro­por­tions: R514m i n cash from op­er­at­ing ac­tiv­i­ties, less R100m spent on capex, l eaves R414m in net cash inflow in re­la­tion to de­clared earn­ings of R190m. No won­der there is no in­ter­est-bear­ing debt and over a bil­lion rand in cash on the bal­ance sheet.

My anal­y­sis in­di­cates that firsthalf rev­enue tends to ac­count for 52%-53% of full-year rev­enue, if the last four years are any­thing to go by. In­terim HEPS tends to be more volatile, but has also been in the re­gion of 52% of full-year earn­ings. If we pro­ceed based on that ra­tio, then full-year HEPS should come in at R15.33/share, mean­ing that the com­pany is trad­ing on a for­ward price- to- earn­ings ra­tio of 1 5.7 times. With growth likely to be on the up­side, I’m pre­pared to take my chances: BUY!

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