ARTICLES

Italtile

Following the impact of COVID-19 and the recent civil unrest, the hunt is on for high quality listed shares which have the potential to rise as the South African economy recovers. Obviously, service companies, which do not require significant working capital (i.e., stock levels or debtors’ books), tend to be more highly rated than manufacturers and retailers. But high quality management combined with a strong balance sheet can sometimes make a manufacturer or retailer very attractive despite its working capital exposure.

Italtile is both a manufacturer and retailer of tiles, “bathroom ware” and related products. Over the years the company has become “vertically integrated” which means that it either manufactures or imports a large proportion of the tiles that it sells through its 203 stores. This has great advantages beyond the additional profits which are kept in house because it means that supply lines are always kept open. Consider the chart:

The company felt the effects of the Zuma years on consumer spending and the economy in general. That accounts for its sideways pattern from 2016 to 2020 below the 1500c resistance line. Then, of course, it was hit by the effects of the lockdowns. But the pandemic brought with it a substantial move towards “work-from-home” which has benefited this company as thousands of people upgraded their homes and equipped them as a place of work. The resistance was finally broken on 27^th January this year. Since then, resistance has become support as the share consolidates for a new upward trend.

The Italtile balance sheet as at the 31^st of December 2020 shows current assets (stock, debtors and cash) of R3,2bn against current liabilities of R1,35bn – which is an extremely strong position. This is further backed up by the fact that the company paid just R7m in interest in six months out of an after-tax profit of over R1bn. In effect this is a company which has no debt and plenty of cash.

In its trading statement for the year to 30^th June 2021 the company says that headline earnings per share (HEPS) are expected to rise by between 74% and 81% from the year before.

So, despite, its large stock and debtor positions (more than R1bn each) this company’s management of its working capital has been tight. Its stock turn ratio is 4,8 – in other words it turned its stock over 4,8 times in the six months to 31^st December 2020 and its average debtors days outstanding is 39 (Debtors/turnover X 365/2). These management ratios are not precise, but they give a good indication of the management of stock and debtors.

On a multiple of 16,24 and riding a wave of home improvement, Italtile looks poised to benefit from any sustained recovery in the South African economy.  

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

CA Sales Revisited

Retailing in Africa is difficult with many of our leading retailers having attempted to open stores in countries to the North of us without notable success. These countries are often unstable and volatile politically. Getting adequate stock to branches has proved problematic and expensive.

It is not surprising therefore that a company has been

Bluetel

Bluetel (BLU) is a company involved in pinless top-ups, prepaid electricity, ticketing and universal vouchers. As such it is a company with substantial repeat business from existing customers. This type of business model is attractive to investors because it implies minimal working capital and strong cash flows.

Bluetel’s purchase

The Debtors' Book

A BIT OF HISTORY

Many years ago, in 1982 when I started this business (which became “PDSnet”), I ran advertisements in both the Rand Daily Mail (RDM) and in the Star – which were the two most widely read newspapers in Johannesburg at the time. At that time, we were a very small business and had no credit rating at all. Despite this the RDM immediately

WeBuyCars - Results

The financial results of companies show how profitable they are and give a good indication of their share’s risk and potential return. WeBuyCars (WBC) is a recent listing which came to the JSE on the 11^th of April 2024. Unlike other listed motor vehicle companies, it is a company which specialises in the purchase and sale

Choosing Winners

We are often asked how we go about selecting the shares to put on to the Winning Shares List (WSL). Right now, there are 102 shares on the list with 5 having gone down since they were added, 94 are up and 3 are unchanged. On an annualised basis, 24 of them are performing at above 100% per annum.   

As a private investor,

Kore Revisited

Kore (KP2) remains at once the most exciting and most risky investment on our Winning Shares List (WSL) at the moment. We originally added it to the list just over a year ago on 16^th May 2024 at a price of 20c. It subsequently rose to a high of 83c on 3^rd October 2024 and we published an article

Rand Strength 2025

The strength of the rand is both a critical and a complex issue for private investors on the JSE. Our currency is influenced by two primary forces:

1. Our local economy’s prospects
2. The rand’s role as a leading emerging market currency

These, in turn, are

Sibanye Revisited

In these uncertain times, when nobody really knows to what extent Trump will back down on the international trade war which he has initiated, many investors are moving into precious metals as a hedge against the weakness of paper currencies (especially the US dollar) and paper assets like equities and bonds.

The problem

Smart Local Investors

The last two months have been wild on the markets – mainly because of Trump’s ill-advised, on-again, off-again tariff policies. The issue now is:

Will this morph into a full-blown bear trend? Or is this correction almost over?

From his election victory on the 6^th of November 2024,

Jerome Powell

The Federal Reserve Bank (“the Fed”) is completely outside the control of the President and Executive Branch of the US government. The chairman of the Fed is appointed for a renewable 4-year term by the President. The President cannot remove the Chair without cause. The current chairman, Jerome Powell was appointed by Trump during his first term as President and reappointed by