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The Finance Ghost: CA Sales Holdings delivers the goods

The Finance Ghost: CA Sales Holdings delivers the goods
The Finance Ghost
By The Finance Ghost
26 Mar 2023
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Never heard of CA Sales Holdings? Well, it’s time you did.

CA Sales Holdings, a relative newcomer to the JSE, was unbundled by the PSG Group back in September 2022, so it has been available to shareholders for barely six months. 

Often called CA&S instead of CA Sales Holdings, the group operates in a niche segment of the fast-moving consumer goods industry, where it helps its clients move their goods through retailers and into the hands of consumers.

Until now it has mostly flown under the radar, despite producing some very good results. The latest example of this is a 31.2% jump in headline earnings per share. With share price growth of about 30% in the past six months, it’s clear to see that the performance supports the share price move.

This result was driven right from the top, with revenue growth of 18.2% in a period that was characterised by high levels of inflation in consumer goods. Although volumes came under pressure in many retail categories, CA Sales managed to navigate this environment successfully with a significant increase in operating profit of 32.4%.

It’s always important to assess whether the cash has followed the earnings. With the dividend up by a healthy 30.4%, we can safely conclude that the earnings are of high quality. As mid-caps go, this one deserves a look.

RFG Holdings: The proof is in the pie


This week, RFG Holdings delivered a beautiful lesson on price elasticity of demand and the importance of managing a business based on financial performance, not vanity metrics like market share. A quick look at Spotify’s financials will show you that market share is useless if you can’t make a profit from it.

RFG Holdings is a food manufacturer, so the products are more likely to be steamed than streamed. If the commentary around demand for pies is anything to go by, they are even more likely to be heated from frozen.

Price elasticity refers to the way in which consumer demand responds to a change in price – in other words, the reduction in volumes based on an increase in price. The optimal balance is the point that maximises revenue and thus profits. It’s far from simple to find this price point in practice, with plenty of trial and error along the way.

RFG Holdings has avoided the trap of trying to maintain or grow market share at all costs. Revenue growth in the 21 weeks ended 26 February 2023 was 7.4%, with price inflation coming in at 14.7%.

If you’re wondering why your food budget just isn’t cutting it anymore, now you know.

Those who understand the relationship between price and volumes will immediately recognise that volumes must’ve fallen sharply. Indeed, they were down by a meaty 11%, reflecting the pressure facing consumers.

The balancing figure is the acquisition of Today, which would be excluded from like-for-like numbers.

Importantly, RFG notes that the volume decreases were similar to overall category performance, which implies that market share was maintained. In other words, all the food producers suffered a significant drop in volumes and RFG elected to protect its profits rather than chase market share by competing on price.

Speaking of Today, it seems that we are all turning to comfort foods to make ourselves feel better in these times. RFG has highlighted the pie category as a winner in this period, with a turnaround in the Today business that is far more palatable than the move in the RFG share price this year, down more than 30%. 

York Timber: Not much good in these woods


If you’re investing in lumber, you need to have enough patience for a forest to grow. Personally, that’s never been my strong suit, which is why I’ve never been bullish on York Timber.

Another reason for my lack of bullishness is that the York numbers always seem to look better when the trees are still planted in the ground, with the biological assets telling a better story than the earnings generated from cutting them down.

The share price has been on a bit of a rollercoaster ride over the past few years. York is down over five years but has more than doubled since March 2020.

I wouldn’t bet on it doubling again from here, as the trees are blowing in the headwinds of production challenges, limited pricing power and significant diesel costs to offset the effects of rolling blackouts.

For the six months ended December, shareholders must swallow the bitter pill of a drop in headline earnings per share of between 27% and 32%. On top of that, cash generated from operations is expected to be between 30% and 35% lower.

In the same way that you followed the cash in CA Sales Holdings, you should do the same in York. It’s sadly heading in the wrong direction.

Balwin: Complexes in complex times


There’s good news and bad news when it comes to Balwin’s latest update. On the bright side, headline earnings per share for the year ended February 2023 is expected to increase by between 16% and 21%, thanks to a focus on gross profit margin.

In an inflationary environment, management teams need to be laser focused on costs. 

This is arguably where the happiness ends. The general outlook is a bit worrying, and in true Balwin style, so is the narrative. If the company had invested in a proper PR team earlier in its life, it wouldn’t be struggling as much with institutional investor confidence. A lack of confidence means a stubbornly low valuation multiple.

For example, an acknowledgement that the company has a “slightly defensive strategy in the handover of apartments” to ensure that the “forward sales position remains robust” sounds a lot like revenue smoothing. 

When you note forward sales of 900 apartments against 1,900 apartments at the same time last year, you can see why it is worried about the future.

As for gross margin, the signs are also not good. The company has had to introduce numerous sales incentives, including a “planned rental guarantee for investors” that sounds a lot like a liability coming down the road.

Trading at below R2.80 and with a guided headline earnings per share range of between 88 and 91.8c per share, the price/earnings multiple is roughly 3.1x. This implies low expectations from the market regarding forward sales, which some will see as ominous and others will see as an opportunity.

Personally, I have as much interest in owning Balwin shares as I have in owning a buy-to-let apartment in this environment: none. DM168

After years in investment banking by The Finance Ghost, his mother’s dire predictions came true: he became a ghost.

This story first appeared in our weekly DM168 newspaper, which is available countrywide for R25.

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