REH moat, page-90

"I think we'll have to wait for the new CEO before we know where tradelink is heading."

@Just_a_guy ,

My sense is that Tradelink is in so far behind that I don't think it will make much difference who runs the show there.

I mean, during one of the most buoyant trading conditions, namely the past 2 years during a huge housing boom, Tradelink earned next to nothing (EBIT averaged some $10m to $12m pa). Can you imagine what its financials will look like when the cycle rolls over?

For their part, I don't think the folk over at Reece spend too much time at all thinking about what their counterparts at Tradelink are doing, or not doing; I think the Reece managers simply wake up every day and go to work with the relentless mindset of trying to ply their trade in a way that is continuously smarter, cheaper, quicker and better, thereby driving the competitive wedge ever deeper between Reece and the rest of the industry.

The end game for Tradelink is, I think a firesale by FBU, probably when Tradelink starts generating a loss and becomes a drag on FBU's earnings (which, based on current trends, shouldn't be too far away).

With Tradelink is sure to come some significant contingent liabilities, in the form of multi-year lease commitments and I think FBU will eventually be forced to almost give Tradelink away, with the new owner taking on those lease commitments as the greater part of the purchase consideration.

It is at that stage that the medicine will be taken and the long tail of loss-making Tradelink stores will be shuttered in.

I can't say for sure when that point in time will be, because it will be a function of the rate of slowing in the residential construction cycle.

But in the interim, the unrelenting Reece noose continues to tighten inexorably, every week and every month and every year, slowly suffocating the life out of the distant number two industry player.

CEO of Tradelink... they wouldn't be able to pay me enough to take on the job.