Italtile defies weak economy
Tiles manufacturer Italtile’s shares rose more than 5% in early trade on Thursday after it released strong interim financial results that defied weak economic growth and subdued consumer confidence. The share price closed 1.5% up at R13.50.
Tilemaker Italtile’s shares rose more than 5% in early trade on Thursday after it released strong interim financial results that defied weak economic growth and subdued consumer confidence. The stock closed 1.5% up at R13.50.
The owner of CTM and Top T brands increased turnover by 23% to R4.3bn, while trading profit was up 35% to R968m in the six months to December.
Italtile, which celebrates its 50th anniversary in 2019, increased earnings per share and headline earnings per share by 14% and 13% respectively. The group improved cash balance from R562m before to R1bn.
Italtile, which also sells bathroomware and related products, grew its stores from 176 to 182.
The interim dividend rose 29% to 22c. In 2018 Italtile changed its dividend policy from three times cover to two and a half times.
Damon Buss, equity analyst at Electus Fund Managers, said on Thursday the company could afford to lower the dividend cover further “because of the generative nature of their business”. Italtile could withstand the external factors because its integrated business model made it relatively defensive compared to other consumer-facing businesses in SA.
“Their manufacturing business, Ceramic Industries, manufactures tiles cheaper in SA than you can import them from China. There are very few SA manufacturing firms that can do this,” Buss said.
The company’s retail brands cut across the consumer income spectrum. “This enables them to capture consumer spend in any environment. In good times, consumers will buy expensive products and in tough times, they down-trade,” he said.
Italtile said while the renovations market remained resilient, new-build activity was largely stagnant and a substantial turnaround in consumer confidence is needed for an improvement in such activity.
The company said it expected trading conditions to remain difficult in the remainder of the financial year.
“With little economic relief forecast in the short term, consumers will continue to experience financial hardship. The prevailing socioeconomic disquiet is also expected to intensify in the lead-up to the national elections and homeowners are likely to defer investment in properties until at least the middle of the current calendar year,” Italtile said.
The company flagged inconsistent power supply among the factors that worsen trading conditions in SA.
The country is reeling from Eskom’s shock decision to implement scheduled power cuts to prevent a total collapse of the national electricity grid.
Italtile counted the electricity shutdowns among factors that compound the effect of sluggish economic growth. Other factors are policy uncertainty, endemic corruption and dissatisfaction with poor service delivery.
Italtile CEO Jan Potgieter said load-shedding affected the company’s sales. “Even though most of our retail stores can trade when there is electricity shutdown, we get affected because of reduced foot traffic,” Potgieter said.