Our opinion on the current state of CASHBIL(CSB)

Cashbuild is the leading retailer in Southern Africa for building materials and hardware, primarily focusing on the home improvement market. The company's growth strategy in the region, characterized by slow economic activity, primarily revolves around expanding its store footprint. This expansion is viewed as a positioning strategy to capitalize on any potential recovery in the broader economic environment of Southern Africa.

For the six months ending on 24th December 2023, Cashbuild reported a modest revenue increase of 2%, but experienced a significant reduction in headline earnings per share (HEPS), which decreased by 20%. Additionally, the company's net asset value (NAV) declined by 16% to 7757 cents per share. These financial indicators reflect the challenging conditions in which Cashbuild operates. The company noted that while revenue from pre-existing stores (312 stores existing before July 2022) saw a slight increase of 1%, the nine new stores also contributed a 1% increase to total growth. However, despite stable gross profit levels, the gross profit margin percentage decreased from 25.3% to 24.7%. This margin contraction was alongside a modest selling price inflation of 3.2% as of December 2023 compared to the previous year.

In its update for the third quarter ending 31st March 2024, Cashbuild continued to report revenue growth, albeit limited to 3%, with the nine new stores again contributing 1% to this growth. Selling price inflation was slightly lower at 2.4%. These figures suggest ongoing efforts to manage costs and pricing in a tight economic context.

From a technical perspective, Cashbuild’s shares have experienced significant volatility. The stock was on a downward trend from March 2018, hitting a low in March 2020 at R120 per share. It then saw a substantial rise to R337 in February 2021, before entering another downward trend. Currently priced at R143.50, the stock trades at a P/E ratio of 13.29 and offers a dividend yield of 3.66%.

Despite Cashbuild's strong management and strategic positioning to leverage any economic upswing, the company operates in a highly competitive sector that demands continual adaptation to market forces and consumer behavior. Although the share price has seen declines, making it more accessible, it still presents as somewhat pricey given the broader market conditions. Potential investors should weigh the robust management against the operational challenges and market position before considering an investment, especially in light of the competitive pressures and economic uncertainties prevailing in Southern Africa.