Operating outside limits

Shaun Miller does not share the concerns of many other CEOs over electricity supply and higher interest rates.

Miller heads Hardware Warehouse, an Eastern Cape-based building materials retailer that caters for rural working-class consumers. Many in this market have no access to electricity and carry little debt.

Hardware Warehouse shrugged off the talk of a retail slowdown to produce strong results for the half-year to end-December. Revenue was up 73% to R102,8m and operating profit rose 58% to R8,7m.<

Hardware Warehouse is not affected by high interest rates because it is a cash business. But where are customers getting the cash? Miller admits it is a bit of a mystery. “If we knew exactly, it would help,” he says. He thinks a large part of the spend comes from city-based workers sending money home, and he suspects pension and social grant payments are playing a part.

Hardware Warehouse opened three stores last year, bringing the total to 14. It expects to open a further two before the end of December. Expansion out of the Eastern Cape has begun with a store in KwaZulu Natal.

Expansion plans are the prime reason it is carrying an overdraft of more than R6m, despite generating R15m from listing on AltX, the JSE's junior board, last year. Miller says there's a good chance borrowing will increase. “We are trying to get a bit more gearing than that.”

Hardware Warehouse's earnings may be on the rise but its profit margin did fall from 9% to 7%. Miller says this was due to the revenue figure being boosted by the sale of a trademark in the previous period.

Is it a good investment? That depends on your view of the “second economy”. What seems clear is that with a price:earnings ratio of just 5,69, Hardware Warehouse is undervalued.

Source: Financial Mail

Published courtesy of