Key message: Solid results with strong cash generation notwithstanding the COVID impact. Strong sales growth post YE is providing FY21 with a good start – but pent-up demand levels (and supply disruptions) are distorting the real underlying demand levels.
- Cashbuild announced FY20 results, with HEPS down 37% to 1177c. Revenue and operating profit declined by 7% respectively.
- Normalised earnings: Excluding COVID and IFRS 16 (FY20) and the 53rd week and IFRS 17 (FY19) impacts revenue increased by 1% and operating profit declined by 10%. HEPS would have declined by 10% to 1636c.
- Gross margins maintained: gross profit margins were maintained, although operating profit margins were impacted by fixed costs.
- Working capital releases over R1.3bn: a timing delay for creditors boosted working capital release by approx. R1bn. This normalised post YE, but cash levels remain around R1bn.
- P&L recovering slowly: P&L posted a profit after a loss in FY19 at the operating level. Margins still lag the Cashbuild store levels.
- TBC acquisition – accessing new customer segments: management provided little detail on the TBC acquisition. It will provide access to the higher LSM and contractor market, giving more diversity to earnings. However, TBC margins look to be significantly lower than Cashbuild – significant cost reduction will be required to justify the purchase.
- We have assumed the TBC acquisition is included in Cashbuild’s financials from 2H FY21. Cashbuild is looking to raise some long-term debt for the first time.
- The first six weeks of FY21 have seen major product sales increasing at double digit rates (cement is up 22%). Local suppliers are struggling to satisfy demand. This seems to be more than just pent up demand – we believe that the COVID impact on competing imports has boosted local sales of certain products. The resumption of normal imports should temper this growth – but how long this disruption remains in unclear.
- We update our forecasts and increase our Target Price to R229 (from R216). FY21 HEPS is forecast at R17.17 (5% increase on normalised FY20 HEPS). We retain our Overweight recommendation.