The market treats Cashbuild and Italtile as though they are interchangeable in a portfolio. Over five years, the share price performances (excluding dividends) are remarkably similar — and incredibly poor. Italtile is down 47% and Cashbuild is down 50%. Including dividends, the five-year total return on Italtile is -20%, while Cashbuild sits at -34%.
The stay-home-and-stay-safe DIY trend of the pandemic (boosted by record low interest rates) is a distant memory. But can this performance be attributed entirely to the Covid base on a five-year view?
Alas, no. Over 12 months, Cashbuild is down 4%, while Italtile is down 17%. Both are in the red, but there’s now a clear deviation in performance. This decoupling happened based on the latest announcements, with the market accepting at long last that Cashbuild and Italtile are actually very different businesses.
This is because of where they sit in the value chain. Both have consumer-facing retail operations, but Italtile features much further up in the chain thanks to its local tile manufacturing business. This creates additional layers of risk (and opportunity).
The upside potential of manufacturing is there in a stronger market, but we are in a terribly weak market for tiles. Though Italtile tried its best to explain that the manufacturing side of the business is a struggle in these conditions, it feels like the message just hadn’t landed.
The market has now got the memo. In the six months to December 2025, Italtile’s trading profit and dividend both fell 14%. Over the same period, Cashbuild’s operating profit rose 10% and the dividend increased 21%. There’s nothing like a major divergence in the dividend trajectory to focus the minds of investors.
Though both companies fall into the consumer discretionary spending bucket, they are exposed to different product verticals. Italtile has a focused product offering (tiles and plumbing), while Cashbuild is a much broader business. But in any construction project, both Italtile and Cashbuild should get a slice of the action, so they have exposure to similar underlying consumer behaviour.
Being at the top of the value chain — ‘the shovel in the gold rush’, as the saying goes — is lucrative only if there’s actually a gold rush
It therefore seems reasonable to conclude that the deviation in performance is being driven by what Italtile has been warning about for ages: the risk of low capacity utilisation in the manufacturing division. But why is this so problematic vs the retail operation struggling with low growth?
In a retail business, if sales are under pressure, you can tweak the range in the store and even reduce the footprint (to the extent allowable by lease terms). It’s a very tough business, but there’s some operational flexibility in the model. There’s also the ability to make decisions around pricing and promotions, or the focus on online vs in-store sales.
Management can do stuff to respond to the environment, as evidenced by Cashbuild’s improvement in gross margin and operating margin, despite only 3% growth in revenue.
But in manufacturing, if your plant is running well below capacity, the unit costs become a huge issue. To achieve solid overhead absorption on a per-unit basis, you need to be pumping units out the door. Italtile’s in-house retail chains are struggling with weak volumes — system-wide turnover was flat in the period. But there’s a far bigger problem in the market that’s way beyond Italtile’s control.
When the rand is strong, imported tiles become cheaper. Even without the stronger rand, South Africa is a dumping ground for foreign-made tiles, as our tariffs are inadequate to protect the local industry. This means that the product mix in South Africa (and neighbouring countries) is shifting towards imported alternatives, leading to a 5% decline in turnover in the supply chain manufacturing segment.
Thanks to the operating leverage in a manufacturing model (the factory overheads and so on), a drop in revenue is a disaster. In the manufacturing segment, interim profit before tax shrank dramatically from R340m to R188m.
Here’s another statistic: turnover in manufacturing fell R148m, yet profit before tax fell R152m. If you look through the income statement, the biggest pressure point is freight costs, as the company has already reduced “manpower costs” significantly.
Something tells me Italtile isn’t where you want to be if oil prices continue their sharp rise due to the war against Iran. Being at the top of the value chain — “the shovel in the gold rush”, as the saying goes — is lucrative only if there’s actually a gold rush. And in the tile market, it’s anything but a gold rush right now.
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