Online builders’ merchants CMO Group (LON: CMO) increased like-for-like 2022 revenues by 2%, but the market remains tough, and it will be difficult to raise revenues this year. At best, the market may recover in the second half.
Online sales share of that market has fallen from the height of the Covid lockdowns, but the trend is still upwards. CMO Group has a 1.15% share of the market, which is much higher than before lockdowns.
In 2022, revenues increased from £76.3m to £83.1m, helped by acquisitions. Gross margins held up at 19.9% as sales of higher margin products offset the decline at Total Tiles, where there were problems with pricing.
Overheads were increased following flotation on AIM and that is why operating margin dived from 3.5% to 1.5%. There was a boost of around £200,000 to operating profit due to a reduction in deferred consideration for a past acquisition. Pre-exceptionals profit fell from £1.5m to £800,000.
On the plus side, the marketing database grew by 13% and 46% of orders are from repeat customers. The average order value is 18% higher. Branding has been made consistent between the various online platforms operated by CMO Group. The Good Build Superstore aimed at consumers rather than trade has been launched.
Overheads are being reduced. Employee numbers are 15% lower than the peak last year and delivery costs are being controlled.
Construction materials manufacturers and retailers are all suffering from a tough start to the year. First quarter sales have fallen by 10% at CMO Group, but Liberum forecasts flat revenues for 2023. Pre-exceptionals profit could halve to £400,000. This should provide the base for recovery.
The share price fell 0.5p to 21p, which is 52 times prospective 2023 earnings, falling to 23 next year.
Net cash was £1.4m at the end of 2022, but CMO could have a modest level of net debt by the end of 2023. Even so, the model means that there are low levels of stock and CMO Group is in a strong position to benefit when there is an upturn in the economy.