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Cashbuild Sees Profit Strained on South African Protests

Cashbuild Ltd., South Africa’s worst-performing stock this month, said anti-government protests, strikes at platinum mines and the fallout from an unsecured lending boom will restrain sales growth.

“We will be more or less in the same scenario we have been at the half year in terms of revenue growth,” Chief Executive Officer Werner de Jager said by phone from Johannesburg on April 15. “For the next six months we are not expecting fireworks. We’ve gone through a rough patch and we’ve taken some actions.”

Revenue at South Africa’s largest retailer of building materials rose 7 percent in the six months through December from a year earlier as profit slid. There have been more than 100 protests in South Africa this year to demand better housing and basic services as the continent’s second-largest economy battles 24 percent unemployment. More than 70,000 workers have been on strike for the past 12 weeks at the biggest platinum mines in Rustenburg in the North West province.

“We can see our stores in Rustenburg and in the platinum belt taking huge strain,” De Jager said. When an area is hit by a service-delivery protests, the company “needs to close its store for the day” to keep employees safe, he said.

Cashbuild has slid 11 percent this month, the second-steepest drop among 166 members in the FTSE/JSE Africa All-Share Index after Net 1 UEPS Tech. The stock rose 0.6 percent to 120.59 rand by the close in Johannesburg.

Taking Action

The shares are trading at 12 times past earnings, compared with the all-share gauge’s 18. The stock’s 14-day relative-strength index advanced above the level of 30, which some analysts deem as oversold, for the first time since April 11.

A slump in unsecured lending, which targets South Africa’s lower-income consumers, has caused Cashbuild’s customers to spend less, according to de Jager. Loans not backed by assets fell 26 percent in the final quarter of 2013 from a year earlier, according to the National Credit Regulator.

The company is taking action to restore profit, Chief Financial Officer Etienne Prowse said in an e-mailed response to questions yesterday. This includes a focus on products that aren’t selling well and taking corrective steps such as pricing or changing the line up by region and negotiating with suppliers to maintain margins while pushing stores to keep costs under control, he said.

“It is a tough consumer environment,” Warren Buys, an equity analyst at Cadiz Asset Management, said by phone from Cape Town on April 15. “It looks like a tight consumer environment for the next year or two with food, fuel and administered prices increasing.”

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