Italtile is set to become a more lucrative dividend payer — if you can get your hands on the shares, that is.
The tightly held tile and ceramics retailer and producer is one of the most consistent performers on the JSE (2018 marks its 30th year as a listed company). Last week it announced it would cut its dividend cover to 2.5 times, after years of grumbling from investors that it has kept a "lazy" balance sheet.
Jan Potgieter, CEO of Italtile since December 2016, admits the company has always been conservative, opting rather to pay a special dividend when its cash haul got too big.
Having too much money, clearly, can sometimes be a bad thing: "The risk is that you sit on cash and you make some bad investment decisions because there’s no pressure," he says.
Potgieter adds that long-term shareholders had pushed for "more reward on an ongoing basis," indicating that they’d be "happy to come to the party" should the company need to raise capital down the line.
What that means is that, in addition to a special dividend of 30c a share for the year to the end of June, shareholders got a chunky 27% increase in the dividend payout to 38c, on a 12% rise in headline earnings to 95c a share for the period under review. Turnover and trading profit were both flattered by Italtile’s 2016 acquisition of manufacturing outfit Ceramic Industries — a company also majority-owned by Italtile’s biggest shareholder, the Ravazzotti family.
The Ceramic deal was a rare acquisitive moment in a company used to growing organically, but Potgieter reveals that Italtile’s bankers would be happy to stump up R1.5bn if the company goes shopping, given the size of its ungeared property portfolio, now worth R3.7bn on its books.
Italtile’s real problem will be finding growth in the year ahead.
The owner of the eponymous Italtile, CTM and Top T brands opened 14 stores in the period. It credits the group’s solid performance to "the impact of enhancements made in the business during the year … as opposed to improved sentiment on spend by consumers".
Potgieter says CTM, which targets the increasingly squeezed mass middle market, is especially under pressure to find new growth avenues.
"Unless we take market share it’s going to be difficult to get that growth going," he says.
Italtile is now planning to refresh some of the CTM stores which, it admits, have become "a little tired" and has budgeted about R500m in capex for the next year.
Part of that will be used to push its growth in East Africa, as well as a store rollout in which it plans to open 10 to 15 new stores. Italtile is also moving into the lighting market through a new store brand called "u Light".
The one operational blot on its earnings was within its Betta sanitaryware division, where growth was crimped by "operational inefficiencies, including warehouse space constraints".
Italtile has since installed a new management team and is restructuring the unit.
Long-time Italtile shares owner Anthony Clark, small-and mid-cap portfolio manager at Vunani Securities, describes Italtile as "a perfect long-term pension-fund stock".
One of the big challenges for investors who are keen to buy in is represented by anchor shareholders, including the Ravazzotti family’s Rallen bloc, as well as institutional investors like Old Mutual, which cling to their shares.
But if there’s one company that stands to benefit from any easing in SA’s snarled-up economy, it’s Italtile.
"When SA finally emerges from its economic straits, Italtile is well set to benefit materially from a return of economic growth and consumer spending, especially on housing," says Clark.