16 August 2021 By PDSNET

Following the impact of COVID-19 and the recent civil unrest, the hunt is on for high quality listed shares which have the potential to rise as the South African economy recovers. Obviously, service companies, which do not require significant working capital (i.e., stock levels or debtors’ books), tend to be more highly rated than manufacturers and retailers. But high quality management combined with a strong balance sheet can sometimes make a manufacturer or retailer very attractive despite its working capital exposure.

Italtile is both a manufacturer and retailer of tiles, “bathroom ware” and related products. Over the years the company has become “vertically integrated” which means that it either manufactures or imports a large proportion of the tiles that it sells through its 203 stores. This has great advantages beyond the additional profits which are kept in house because it means that supply lines are always kept open. Consider the chart:

Italtile (ITE): October 2013 - 13 August 2021. Chart by ShareFriend Pro

The company felt the effects of the Zuma years on consumer spending and the economy in general. That accounts for its sideways pattern from 2016 to 2020 below the 1500c resistance line. Then, of course, it was hit by the effects of the lockdowns. But the pandemic brought with it a substantial move towards “work-from-home” which has benefited this company as thousands of people upgraded their homes and equipped them as a place of work. The resistance was finally broken on 27th January this year. Since then, resistance has become support as the share consolidates for a new upward trend.

The Italtile balance sheet as at the 31st of December 2020 shows current assets (stock, debtors and cash) of R3,2bn against current liabilities of R1,35bn – which is an extremely strong position. This is further backed up by the fact that the company paid just R7m in interest in six months out of an after-tax profit of over R1bn. In effect this is a company which has no debt and plenty of cash.

In its trading statement for the year to 30th June 2021 the company says that headline earnings per share (HEPS) are expected to rise by between 74% and 81% from the year before.

So, despite, its large stock and debtor positions (more than R1bn each) this company’s management of its working capital has been tight. Its stock turn ratio is 4,8 – in other words it turned its stock over 4,8 times in the six months to 31st December 2020 and its average debtors days outstanding is 39 (Debtors/turnover X 365/2). These management ratios are not precise, but they give a good indication of the management of stock and debtors.

On a multiple of 16,24 and riding a wave of home improvement, Italtile looks poised to benefit from any sustained recovery in the South African economy.  


All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

Share this article:


The Anatomy of the Bear

As the bear market unfolds on Wall Street you either hold shares or you are sitting in cash. For those who are holding shares, as we have said consistently, you need to watch your stop-loss levels very closely because you are operating in a market where the odds are decidedly against you.

For those in cash, your position is

Bear Trend

We never regarded the COVID-19 fall of the S&P500 in March 2020 as a bear trend. In our view it was always a technical aberration caused by the “black swan” event of the pandemic. It caused a temporary downward spike which lasted from February to August 2020, but it was never a true bear market.

Then on Monday

Uncharted Territory

The world has entered a turbulent time, the outcome of which will largely determine the future order of things. There are six great areas of uncertainty which the private investor should formulate a coherent opinion on:


  • The war in Ukraine is in reality the remnants of the cold war, a low-level conflict

Triple bottoms

Investors should be riveted to the progress of the S&P500 index these days. As we said in our article three weeks ago, the S&P is teetering on the edge of a bear trend. Following that article, the index climbed back up and then on the US Memorial Day weekend it encountered significant

Basic Fundamentals

Public, listed companies are required to report back to their shareholders on a regular basis. They must produce audited financial statements after the first six months of their financial year (interims) and then again at the end of the financial year (finals). Listed companies must produce these statements within 3 months of the end of their

Teetering on the Edge

Last Friday, the S&P500 actually dipped into bear market territory during the trading day. It went as low as 3811.28 before staging a remarkable recovery in afternoon trade to close at 3901.36. This resulted in Friday’s candle becoming what is known as a “hammer” – a candle with a very short body and a long downward

Bitcoin versus Gold

Cryptocurrencies cannot really be considered an investment because they have no fundamentals. Their value is derived exclusively from the belief of the people who invest in them. When belief in Bitcoin is strong the price rises and when it is weak, the price falls.

Bitcoin cannot be regarded as a “safe haven” asset


Most investors would probably agree that there is a considerable amount of uncertainty in equity markets at the moment. From a fundamental perspective, that uncertainty has come about because of:

  1. The force with which the central banks of the world (especially the US Fed) will “stamp on the brakes” to reduce

Powells Punch

In November last year we wrote the following about the U.S. economy in the Confidential Report:

…what if the Fed is wrong about inflation and it persists at the current high levels or even increases? September was the 5th month where inflation was above 5%. If they are wrong, then they will need to raise interest


Nineteen months ago on 2nd of September 2020 in the Confidential Report, we recommended buying Lewis shares when they were trading for just 1668c. The share has now moved up to 4670c – a gain of 180%. Amazingly, it remains excellent value today despite this substantial rise in its price.

The company has 817 stores with 84%