Home improvement was so 2021
environment, operational excellence is key to delivering decent results.
Harmony Gold has demonstrated what happens when operations don’t go well. Revenue was up by 2% in the year ended June 2022 but production profit tanked by 20%. Operating cash flow was down 55%.
When investing thematically, the old saying of “buying the shovel in the gold rush” has been particularly applicable in the past year. In this case, you wanted the drill rather than the shovel. Master Drilling grew headline earnings per share (HEPS) by 55.5% in the six months to June 2022, so earnings are supportive of growth in the share price of nearly 50% in the past year.
Cashbuild will confirm that people are going on holiday rather than renovating their houses, with revenue down 12% despite selling price inflation of 7.2% in the year ended 26 June 2022.
This trend is also visible at Trellidor, with a 1% drop in turnover in the year ended June 2022. That would be manageable if steel prices hadn’t increased by more than 80% in the past two years. The final dagger through the heart of the income statement was a Labour Court judgment that led to a provision of R32.1-million.
What is the true worth?
Even after releasing surprisingly strong results, Truworths’ share price is up less than 10% this year.
The market treats Truworths as a value stock, focusing on the dividend yield and assuming that any growth in the share price will be modest. This explains why the dividend for the 53 weeks ended 3 July 2022 of 505 cents per share equates to a strong dividend yield of 8.7%.
Some are questioning the validity of this thesis, as Truworths managed to grow sales by 6.6% on a comparable 52-week basis and HEPS by 42.4%. Although there is clearly a base effect here related to Covid, expansion in gross margin was impressive.
If it can deliver another period of decent growth, the best item on sale at Truworths might be the shares themselves.