Nixing the next

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Investors – especially those excitable retail punters – may by now be a little wary of chasing “the next”. What I mean by “the next” are those sometimes dangerous arguments a certain fledgling business is set to emulate the achievements of one of the JSE’s legendary listings. So over the years readers may have heard that Billboard would be the next Adcorp, Decillion the next Coronation, Fashion Africa the next Pep, Exxoteq the next Energy Africa.

Of course a few “nexts” – albeit the distinct minority – have started to look the part and you only have to think of Capitec (the next Abil), GoldOne International (the next Harmony) or Litha (the next Aspen).

Now I wouldn’t want to tag Eastern Cape-based building supplies retailer Hardware Warehouse [JSE:HWW] with a “next” label, but any reasonable person reading through the company’s results is going to be thinking of a certain building supplies legend. But let’s forget labels. Hardware is an overlooked player on the AltX – as would be the case when the market only has eyes for market legend Cashbuild [JSE:CSB].

Hardware is a long, long way off Cashbuild. It’s small and geographically limited, but interim results to end-December 2010 showed profit from operations of R5,6m off turnover of R219m. Earnings – which included a R2,6m tax credit – came in at 8,52c. But more importantly, cash from operations was R12m and net cash generated a reassuring R7m (or 9c/share) – despite hassles with its plumbing business (which has subsequently been disposed of).

Gut feel is Hardware has come through a very tough 30 months and the benefits of careful expansion out of its traditional Eastern Cape market (into KwaZulu-Natal and Mpumalanga) will show up in its next financial year. Hopefully, its full year results for 2011 will provide further reassurance that operations – with the leaks plugged – are robust. 
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