The Business Show: Great business model again proves its mettle for Cashbuild in double-digit growth

In tough times, savvy investors tend to overlook the growth hype and focus on stocks with solid management, strong business models, and resilient markets. Building supplies retailer Cashbuild always fitted the bill, but lost its shine after a R350m acquisition didn’t go according to plan. As a result, the share price dropped 20% in the past six months. Cashbuild’s low-key CEO Werner de Jager spoke to BizNews editor Alec Hogg after this morning’s publication of the FY25 results. There’s a lot for existing and potential shareholders to like about what he shared..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..Watch here.Listen here.BizNews Reporter.In a recent interview with BizNews’ Alec Hogg, Cashbuild CEO Werner De Jager offered a compelling insight into the company's financial results and, by extension, the state of the South African economy. As a retailer of basic building materials, with a focus on middle to lower-income groups, Cashbuild's performance is a crucial barometer of what's happening on the ground.The group's results for the past financial year reflect a challenging economic climate, with a 5% like-for-like revenue growth. De Jager explained that while the company is coming off a strong post-COVID period, the last two years have shown that consumers are under significant pressure. The rising unemployment rate and a lack of large-scale infrastructure projects are palpable in the business, as these factors directly impact the spending power of their core customer base.De Jager shed light on the company's customer demographics, revealing that while do-it-yourself (DIY) builders make up the majority of their customers, the "Bucky Builders" - generalist contractors who do everything from painting to home additions - account for 65% of revenue. This customer segment, he says, is vital, and their activity provides a real-time pulse of the country's economic health.A fascinating aspect of Cashbuild's business is its “Send a Home” product, which allows customers working in urban areas to pay for materials to be delivered to their families in more traditional, rural regions. This service is a testament to the company's deep understanding of its market, which includes young professionals and even those working abroad who send money home for home improvements.De Jager also highlighted a significant factor affecting the company's revenue growth: low inflation in key building materials. He revealed that their basket inflation was just 1.7% for the year, with a mere 0.3% inflation on cement and a deflation of 2.5% on steel products. This is a crucial point, as it shows that Cashbuild's revenue growth is driven by genuine increases in volume, not just rising prices.On the supply side, the CEO discussed the impact of major industrial players. He noted that they have re-engaged with Afrimat to procure cement from the recently acquired Lichtenburg plant, praising the improved consistency of supply. However, the potential closure of ArcelorMittal's long steel business in Newcastle is a major concern. While Cashbuild doesn't buy directly from them, the disruption to the supply chain for products like corrugated iron has already been felt, and the associated job losses will have a detrimental effect on local stores.The conversation also turned to the acquisition of P&L Hardware, which De Jager admitted has been a challenging integration. He candidly shared the lessons learned, stating that the company initially tried to impose the "Cashbuild model" on a business with a fundamentally different ethos. P&L's customers, he explained, prefer a less formal, more hands-on shopping experience. Learning from this, Cashbuild has now developed a new "Small Model Store" (SMA) concept, which is more agile and better suited to smaller, rural communities. Six of the eight new stores opened this year were SMAs, a move that is already yielding positive results.De Jager also gave insight into the company's strong cash flow, which enabled a healthy increase in dividend payouts. He attributed this to the company's robust business model, where 98% of sales are made on a cash or card basis. This ensures that the company is paid for its products before it needs to pay its suppliers, creating a very healthy cash-generation cycle.Looking ahead, De Jager was cautiously optimistic. While he wouldn't make firm predictions, he noted that the first seven weeks of the new financial year had seen a promising revenue growth of 6.5%. He stressed the importance of staying focused on the basics: maintaining tight cost control and executing the company's strategy effectively.Cashbuild's story, as told by its CEO, is a micro-economic snapshot of the country. It reflects the resilience of South Africans, the challenges posed by unemployment and global economic headwinds, and the importance of adapting a business model to meet the evolving needs of the market.