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!