Key message: Difficult trading environment affects revenue and lowers margins from post-Covid DIY/building market boom period.

  • Cashbuild recently released 1H FY23 results. HEPS declined 39% to 694c on a 4% and 47% decline in revenue and operating profit respectively. Gross margins declined marginally to 25.2% (from 26.6%), although the comparable 1H FY22 high margin was due to insurance proceeds received for stock losses (R143m), with the gross margin below 25% adjusting for these proceeds.
  • Revenue has lowered by 4% year-on year with Cashbuild SA stores experiencing a 3% decline in revenue and P&L Hardware experiencing a 10% decline in revenue.
  • Adjusting for looting impacts in the comparable period, revenue in Q2 fell 8% as DIY volumes continue to fall rapidly after the post-Covid lockdown boom. Revenue has now fallen to close to pre-Covid levels (adjusting for inflation real revenue has declined). 3Q revenue fell 9%.
  • Customer transactions have decreased by 7% in all stores. The average basket size has increased by 4% in Q1 and 3% in Q2, with inflation of 4.8% in Q1 and 5% in Q2. Customers remain under pressure with trading conditions expected to remain challenging.
  • Operating margins were impacted by operating expenses increasing by 9% and the operating margin fell to 4.6% (1H FY22: 8.4%). Operating expenses as a % of revenue are higher than normal and management expect this to reduce, bringing operating margins back to a normalised 5-6%.
  • Volumes have fallen faster than expected, with consumers struggling with higher interest rates and tending to spend on load-shedding mitigation rather than home building or additions. Margins have fallen substantially, although much of this is a correction from previous unsustainably high margins caused by post-Covid market anomalies. Management had flagged a margin reversion.
  • Increased competition from independent stores with a consequent increase in cheaper inferior products has put pressure on prices and volumes. We have reduced our FY23 HEPS forecast by almost 30% as a result, with FY24 HEPS adjusted downwards by 20%.
  • FY21 and FY22 created a high base, with operating margins now back to historical normal levels. We reduce our Target Price to R183 (from R313).

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