Trellidor – building up to a rally

Cashbuild recently indicated that its sales to the end of December 2020 jumped 24% year on year. Massmart too has indicated a strong second-half recovery in its Builders Warehouse sales, with Spar’s BuildIT outfit echoing the same sentiment.

Read: Cashbuild is on the up (Oct 2020)

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. In the US, Home Depot has reported a steady 23% year on year 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 following converging factors are favourable for the building materials market:

1. People are stuck in their homes for extended periods of time;
2. Those lucky enough to keep their jobs are saving money by travelling/commuting less;
3. People are setting up home offices and, in some instances, these are likely to be permanent;
4. Interest rates are low, and low- to mid-range residential property demand is surging; and
5. 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 to, painting that wall, relocating to that suburb and/or improving their homes (and home offices) substantially.

As a near ‘pure play’ in the domestic DIY market, Cashbuild’s share price is up a dramatic 42% over the last 12 months.

Share price 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 may also offer some niche exposure here, but its share price is up 23% over the last 12 months and a lot of that may already be priced in.

Off the radar though, the market may still not have remembered Trellidor.

The group – which manufactures and distributes Trellidor security doors, Taylor blinds and a range of other home improvement products – has a share price that is down 30% over the last 12 months.

Much like Cashbuild and the other retailers, Trellidor had a tough period till the end of June 2020 (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 and 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 that Trellidor’s 2021 financial year sales get back to their 2019 levels, then the group may be on lowly five to six times price-earnings (PE) ratio.

But all things are not equal:

• Trellidor has bought back seven million of its shares (around 7% of the total) at an average price of 327 cents per share or a premium 30% higher than the current share price,
• Trellidor cut costs during its 2020 year that should annualise nicely in FY2021; and
• The above noted sales tailwinds may have sent sales higher.

Normally I would say that ‘time will tell’ here, but I suspect that we won’t have to wait long to find out how correct I am. If my suspicions are right, we can expect an exciting trading update 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!

Read: Investors thinking of getting back into small caps should take note (Aug 2020)

Keith McLachlan is a small cap analyst. He owns shares in Trellidor.