The g spot
There has been a huge swing in sentiment towards some of the JSE’s mid-and small-cap stocks recently. Cartrack, for one. Cashbuild is another. Its shares have rallied 13% year to date and the building and hardware supplies group enjoyed an astonishing 21% year-on-year rise in revenue over its second quarter to end-December. Clearly, there’s life in the SA economy yet. The FM spoke to CEO Werner de Jager.
It’s understandable to see a rebound from the lockdown, but this performance is against that of 2019. Were you surprised by how good business was?
WdJ: To an extent, yes. The surprise actually came in May when we were allowed to trade again. For May we were up 12% and in June we were up 13% and then from July onwards [revenue growth] shot up to the 21% level.
Can one extrapolate that the SA economy is in better health than the official stats would suggest?
WdJ: I don’t think so. I’m certainly not an economist and there is still lots of bad news coming from everywhere. But our sector [is enjoying] a bit of a newfound love for people’s homes. They’re investing, making them better, and there are other factors too: lots of government subsidies and Ters [the temporary employer-employee relief scheme]. Certainly, retrenchment packages normally get spent on housing and renovations and I understand that there have been early pension withdrawals in the system. So all that boosted money in consumers’ hands.
But if it is pension withdrawals and government support, which is finite, should we brace for a slowdown?
WdJ: Being conservative in nature, we obviously plan to continue the levels we’re seeing but we don’t want to get naive and get caught napping by overstocking. Fundamentally, when you look at other drivers, job losses et cetera, we should be seeing the opposite. There were obviously internal factors for Cashbuild. We were well stocked during this time [notwithstanding] the cement shortages, and I think that helped us to show slightly better figures than we’d normally have seen. But there’s not something I can hang my hat on to say I’m confident that for the next year we’ll see this [kind of growth].
How was it that Cashbuild managed to sidestep those shortages?
WdJ: We didn’t sidestep it and in P&L, which is more regional, they had a lot of cement issues. But we were good with our supplier relationships. When we heard about the first lockdown we put in double shifts in our creditors’ department to process paperwork so at the end of March we managed to fully pay all our suppliers. In April we were able to get people into the support office and make full payments again. So when there were allocations to be done we got our fair share and probably slightly more.
P&L, which you bought for R350m in 2016, has had a rocky couple of years, raising questions about your acquisitive savvy. You’re now spending R1bn to buy the Building Company from Pepkor. Is this wise?
WdJ: Obviously, we learnt quite a few valuable lessons from the P&L acquisition and there are some things we definitely won’t be repeating.
WdJ: Well, the difference between the Building Company and P&L is that the former is a well-run corporate business, so there’s management that will stay in place and be part of the transaction. With the P&L transaction it was a family-owned business and for three years we had a profit guarantee that meant we were not really allowed to get stuck in to manage the business. The jury is out, but we as a team are very resolute to allay fears about our abilities.
Was this deal necessary for Cashbuild’s future?
WdJ: The organic growth opportunities are becoming fewer. We’re at about 260 Cashbuild stores and we believe there’s saturation in the region of 320. So that tells you we only had six to eight years left. From a longevity point of view we’d have hit the wall at some point. Also, we were only fishing in the middle-to low-income pond. If you look at the segmentation of the building industry, 60% actually sits in the higher end of the market — like Builders. We haven’t had access to that, and the Building Company’s footprint, from a coastal perspective, gives us a lot of incremental growth.
What about your new shareholder, Value Capital Partners? They’re known for shaking things up and it doesn’t always end well for management.
WdJ: They had just below 5% [of Cashbuild stock] for a while now and we’ve had normal interactions with them as with all our other shareholders. I can’t speak for what their plans are but … we know what we want to do and maybe it fits with their ideas of what we should be doing as well.
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