Originally published over here.
Cashbuild (CSB) recently indicated that their sales till end of December 2020 had jumped +24% y/y. Massmart too has indicated a strong second-half recovery in their Builders Warehouse sales with Spar’s BuildIT outfit echoing the same sentiment.
While these are great results, they are not unique. Building materials, DIY and home improvement businesses around the world have seen surging sales from mid-2020. Off in the States, Home Depot has reported a stead +23% y/y growth in 2020 sales with similar figures out of Lowe’s Companies. Likewise—and despite Brexit and further lockdowns—Kingfisher Plc in the UK has seen rocketing sales growth.
What is quite clear is that the below converging factors are favourable for the building materials market:
- People are stuck in their homes for extended periods of time,
- Those lucky enough to keep their jobs, are saving money by travelling/commuting less,
- People are setting up home offices and, in some instances, these are likely to be permanent, &
- Interest rates are low and (low- to mid-range) residential property demand is surging.
- (Finally—and yet to really happen—throw in a fiscal-led boom in global infrastructure spending that most governments are talking about…)
Hence, quite a lot of people with quite a bit of spending power are finally getting around to fixing that thing in the house they wanted too, painting that wall, relocating to that suburb and/or improving their homes (and home offices) substantially.
As a near “pure play” on the domestic DIY market, Cashbuild’s share price is up a dramatic +42% over the last twelve months. Share prices moves like this tell us that the strong tailwinds for Cashbuild are hardly a secret.
But who else stands to benefit?
Well, Massmart and Spar both have strong DIY offerings, but diluted by far larger non-DIY operations. Italtile (ITE) may also offer some niche exposure here, but its share price is +23% over the last twelve months and a lot of that may already be priced in.
Off the radar, though, the market may still not have remembered Trellidor (TRL). The Group—that manufacturers and distributes Trellidor security doors, Taylor blinds and a range other home improvement products—has a share price that is -30% over the last twelve months.
Much like Cashbuild and the other retailers, Trellidor had a tough period till the end of June 2020 (i.e. the hard part of the hard lockdown). Unlike the others, though, the Group is yet to publish any market update for the period ended December 2020. If Cashbuild, Massmart, Spar & various channel checks and anecdotal evidence is anything to go by, the same tailwinds that have boosted the other home improvement retailers should also boost Trellidor.
All things being equal, if we assume Trellidor’s FY 21E sales get back to FY 19 levels, then the Group may be on lowly 5.0~6.0x Price Earnings (PE). But all things are not equal:
- Trellidor has bought back 7m of its shares (c.7% of their shares) at an average price of 327cps or a premium of 30% higher than the current share price,
- Trellidor has cut costs during FY 20 that should annualize nicely in FY 21E, &
- The above noted sales tailwinds may have boosted sales higher.
Normally I would say that “time will tell” here, but I suspect that we will not have to wait long to find out how correct I am. If my suspicions are right, we can expect an exciting trading update out from Trellidor any day now. And, with a little luck, Trellidor’s share price will quickly play catch-up with the other DIY and building materials businesses!
Originally published over here.