Big Italtile investor reward as trade profit surges 70%

• Group expects boom in home improvement to go on, but warns that it is unlikely to last after Covid-19 vaccination rollout becomes comprehensive

Bathroomware company Italtile, which owns CTM and U-Light, is pressing ahead with expansion plans after setting a number of records for its 2021 year, including a R1.4bn shareholder payout, even as it warns SA’s boom in home improvement is unlikely to last.

As global economies revive with vaccine rollouts, international trends pointed to a slowdown in home activity, CEO Jan Potgieter told Business Day. However, the group remained confident in its business model and could open 10 new stores in its 2022 year.

“It would be a brave man who can give any prediction,” he said, “but we are going to focus on what we can control.”

More time at home working and relaxing, low interest rates, and a shift in spend away from travel and transport have all benefited the JSE-listed group, which lifted turnover just more than a quarter to R11.6bn in the year to end-June, while trading profit surged 70% to R2.6bn.

The group’s net cash pile grew R221m to R1.1bn despite R2.5bn in outflows. Italtile on Thursday declared a special dividend for the fourth year running, making for a total 2021 payout of 106c, or about R1.4bn, almost double 2020’s 56c.

Italtile, founded in 1969 and valued at R21.3bn on the JSE, has 206 stores targeting lower-middle to upper-end income consumers. The store base increased by eight year on year, with 23 in the rest of Africa.

Potgieter said the group had not only benefited from a pandemic-induced bump in home improvement in its year to endJune, but had spent the past three years focusing internally, including on a culture of “high performance”. The group issued R290m in payouts to staff for the period through various profitsharing agreements.

Italtile has also been investing in its online presence, with six online stores, as well as the shopping environment in its brick-and-mortar stores, while a further benefit had come from its integrated business model, which sees the group source about three quarters of its products locally, including from its own factories.

Italtile expects the strong demand for home improvement to be sustained until the vaccine rollout becomes comprehensive, while consumers have become more risk averse and more decisive in their spending behaviour.

Previously, in advance of making purchases, prospective customers would spend significant time browsing in-store or researching competitors’ comparable offerings.

Consumers now spend more time researching online, and should they decide to transact in-store, they gravitate to trusted brands that provide safe, comforting environments, with onestop-solutions for all their requirements, the group said.

Italtile spent a record R1bn on capital expenditure in its year to end-June, guiding between R850m and R900m for 2022, and it has already opened five new stores since the end of the financial year, which had been delayed due to local municipal inefficiencies as well as Covid19. The five new stores includes one new one in Kenya, and the group may open a total of three, with Potgieter saying the group was looking to East Africa in particular for growth.

At present it was a bit more difficult to compete there, as Italtile did not have an integrated supply chain.

While it was looking to build it, issues such as raw material shortages meant that no major announcement could be expected soon, he said.

“It think the fact that we are investing that we are opening more stores indicates that we have confidence in our business model,” he said.

Small Talk Daily’s Anthony Clark said Italtile still had a number of new avenues for growth in SA and in Africa, and the market seemed to be missing the group’s inherent strength and potential.

“With the stock stuck in a narrow trading range for all of 2021 rangebound, between R16 and R17 I believe the stock is ripe for a break to the upside given these results and encouraging prospects,” he said.

In afternoon trade on Thursday, Italtile’s shares were up 3.65% to R16.75, having risen 13% so far in 2021, and almost 28% since the beginning of 2020.

I BELIEVE THE STOCK IS RIPE FOR A BREAK TO THE UPSIDE GIVEN THESE RESULTS AND PROSPECTS