Our opinion on the current state of ITE

Italtile (ITE) is a franchisor of tiles, sanitary ware, flooring, and home finishing products - which it manufactures and wholesales itself. The company is controlled by the Ravazotti family. It has 206 stores and 6 online web stores. It also has a property portfolio of retail and industrial properties worth about R4,3bn. The company has acquired 95,47% of Ceramic Industries and 71,54% of Ezee Tile, which it styles as its "manufacturing" business (as opposed to its "retail" business). The company gained an increased "share of wallet" and improved the management of stockholding and working capital. The company appears to be benefiting from increased sales as people work from home and seek to improve their home environments. It plans to add between 10 and 15 new stores this year. It has also bought back about R240m worth of its own shares at lower levels. The company closed 18 stores in Natal and 16 other stores for 10 days during the civil unrest. Two stores at Orange Farm and Spruitview were destroyed. There have also been store closures due to COVID-19 during July 2021. In its results for the year to 30th June 2023 the company reported turnover up 1% and headline earnings per share (HEPS) down 13%. The company's net asset value (NAV) increased by 12% to 642c per share. The company said, "Selling price inflation for the Review Period was 6,7%. Weaker consumer demand and poor efficiencies in the manufacturing business resulted in a 5,6% decrease in gross profit margin from 45,8% to 43,2%". In a sales update for the 5 months to 30th November 2023 the company reported turnover down 2,9% while manufacturing sales declined by 5,9%. Technically, the share moved sideways for two years until COVID-19 took it down to levels around R10. It has been moving sideways and downwards for a few months. We believe it represents a significant buying opportunity at current levels around 1138c per share and on a P:E of 8,6, but we recommend waiting until it breaks up through the current downward trendline before buying.