Our opinion on the current state of CSB

Cashbuild, the premier retailer in Southern Africa for building materials and related hardware, focuses on the home improvement market. Amid the current economic downturn in Southern Africa, Cashbuild's growth strategy primarily revolves around the expansion of its store network. This approach is a clear indicator of the company's intent to not only survive the challenging times but also to position itself to capitalize on any potential economic recovery within the region.

For the fiscal year ending on 25th June 2023, Cashbuild reported a 4% decrease in revenue and a significant 38% decline in headline earnings per share (HEPS). The company detailed that revenue from stores operating before July 2021 (termed pre-existing stores, totaling 308) fell by 6%, whereas revenue from 10 new stores contributed a 2% growth. Additionally, there was an 8% decrease in gross profit, with the gross profit margin percentage dropping from 26.3% to 25.4%. The period ended with a selling price inflation of 5.4% compared to the previous year.

In the operational update for the quarter ending on 30th September 2023, Cashbuild reported a 2% revenue decrease from its 312 existing stores, which had been operational before July 2022, while 8 new stores added a 2% growth. Transaction levels remained steady, with existing stores experiencing a 2% decrease and new stores contributing a 2% increase in transactions for the first quarter.

The second quarter update to 24th December 2023 highlighted a 5% revenue increase, with sales from the same stores rising by 3%. Cashbuild inaugurated 9 new stores, increasing the total to 321, and noted a selling inflation rate of 3.2%. Transaction volume through the tills saw a marginal 1% increase for the group during the second quarter, with existing stores recording a 1% decrease and new stores adding a 2% increase.

In its trading statement for the 26 weeks ending on 24th December 2023, Cashbuild anticipated a HEPS decrease of between 15% and 20%. From a technical perspective, Cashbuild's share price experienced a consistent downward trend starting in March 2018 but found a nadir in March 2020 at R120 per share. The share price enjoyed a surge to R337 in February 2021 before entering another downward trajectory. Currently priced at R144, with a P/E ratio of 11.79 and a dividend yield of 4.07%, Cashbuild demonstrates the hallmarks of a well-managed entity poised for growth upon any economic upturn. However, given the competitive nature of the industry and the company's current valuation, it appears slightly overpriced at present levels, suggesting a cautious approach for potential investors.