Good job with your part. 3! I readed comments also and I think we focusing too much on the house bubble. The most important factor for RCH is Interest Rate and % of house aged 35 years and more.
- First the age of house is very important to know if people will remodel/renovate their house or not, about this, perspective at US is very good for RCH.
- Interest Rate :: this is the most important factor and we cannot compare with 2001/02 and 2008/09, why? Because they drop the rate during recession, so people can refinance take money from their house and renovate their house.
In addition, renovating a kitchen or a bathroom is very expensive, so many people would have to go into debt to do this renovation and the most common way is to refinance the house at 2-3-4-5%
I know many other factors need to be watched, but for me and in the short term, these factors are very important to understand price/margin/growth. That's why I don't think management will maintain their EBITDA margin at 14% and we should be back to ~11% margins.
Hello! Thanks for your great analysis. I personaly think that there are headwinds in the short term. For example, the consumer sentiment related to the macrotrends economic cycle could have some impact in the bussiness. The housing tendencies also should have some impact. I think the rise in the interest rate will affect housing.
However, the financial position is sound. The low part of the cycle is normally good to serial acquirers when they have an excelent financial position. In fact, they are expading themselves faster than ever taking into consideration the number of distribution center, especially in EEUU.
Even with a significat decline in Ebitda in 2023, it would be an atractive investment in the long run if we think the growth will accelerate later. I am considering to start a position. I think the time is with the shareholder in this case. Even if we are wrong about about the price and the decline is worse than expected I think the company will be still here and growing in the following years.
Good job with your part. 3! I readed comments also and I think we focusing too much on the house bubble. The most important factor for RCH is Interest Rate and % of house aged 35 years and more.
- First the age of house is very important to know if people will remodel/renovate their house or not, about this, perspective at US is very good for RCH.
- Interest Rate :: this is the most important factor and we cannot compare with 2001/02 and 2008/09, why? Because they drop the rate during recession, so people can refinance take money from their house and renovate their house.
In addition, renovating a kitchen or a bathroom is very expensive, so many people would have to go into debt to do this renovation and the most common way is to refinance the house at 2-3-4-5%
I know many other factors need to be watched, but for me and in the short term, these factors are very important to understand price/margin/growth. That's why I don't think management will maintain their EBITDA margin at 14% and we should be back to ~11% margins.
I have a lot to say but I will stop here.
Hello! Thanks for your great analysis. I personaly think that there are headwinds in the short term. For example, the consumer sentiment related to the macrotrends economic cycle could have some impact in the bussiness. The housing tendencies also should have some impact. I think the rise in the interest rate will affect housing.
However, the financial position is sound. The low part of the cycle is normally good to serial acquirers when they have an excelent financial position. In fact, they are expading themselves faster than ever taking into consideration the number of distribution center, especially in EEUU.
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Cánada 30 31 30 35 34 34 35 36 36 36 36 36 39 41 47 50
EEUU 15 16 18 23 24 24 25 28 28 31 31 34 36 41 57 59
Even with a significat decline in Ebitda in 2023, it would be an atractive investment in the long run if we think the growth will accelerate later. I am considering to start a position. I think the time is with the shareholder in this case. Even if we are wrong about about the price and the decline is worse than expected I think the company will be still here and growing in the following years.
Hi Govro, thanks again for another great read! What do you think the greatest risk facing RCH is? There is a lot of concern for example around the housing "bubble" in Canada and that their earnings are potentially less resilient especially given the heightened Covid sales base. Others argue that there is a structural deficit in housing supply. From your piece i assume you believe that the concerns are exagerated and that the business will perform just fine over the short term. Keen to hear your thoughts here and also what you think the greatest risk is for the company. And how do you think about the potential organic growth of the company vs inorganic growth or do you not make any distinction here? All the best and thanks again! https://www.google.com/search?q=canadian+house+prices+relative+to+income&tbm=isch&ved=2ahUKEwis34Xq3qz-AhVii_0HHTdTAaEQ2-cCegQIABAC&oq=canadian+house+prices+relative+to+income&gs_lcp=ChJtb2JpbGUtZ3dzLXdpei1pbWcQAzIFCAAQogQ6BAgjECc6BwgAEIAEEBM6BggAEB4QEzoECCEQCjoECB4QClDnBlieMWDoMmgAcAB4AIABtQGIAa0QkgEEMTIuOJgBAKABAcABAQ&sclient=mobile-gws-wiz-img&ei=Cws7ZOytA-KW9u8Pt6aFiAo&bih=732&biw=393&client=ms-android-xiaomi-rvo3&prmd=insv#imgrc=o1_4dvhnoP0CsM&imgdii=rEUHDHlSQl-RRM
I used last 30 years and EBITDA margin is at 13%. One could argue that 2013 to 2018 margin was depressed because of aggressive USA expansion.