Our opinion on the current state of KAL

2023年11月24日

Previously, Kaap Agri, the KAL Group is an agricultural company owned 40,9% by Zeder, which is, in turn, 43,7% held by PSG. The company operates through over 190 retail outlets offering a wide range of products and services mainly to the farming community. Kaap Agri has seven divisions: (1) Pakmark offers a wide range of packaging materials for the local and export markets, especially to the fruit industry. (2) Agrimark has over 70 stores in South Africa and Namibia offering a wide range of animal feeds, gardening equipment, tools, outdoor and camping equipment and pet accessories. (3) Liquormark offers a wide range of liquor products from beers to wines, spirits and mixers. (4) Kaap Agri Mechanisation offers farming machinery and equipment. (5) Wesgraan offers grain handling and management services. (6) Expressmark supplies fuel, especially diesel, mainly to the farming community. It also has convenience stores. (7) The Fuel Company (TFC) aims to be the market leader in the independent fuel retail market in South Africa. The group's product diversity has reduced its exposure to weather conditions in the agricultural sector, especially in the Western Cape, but it remains essentially a retail outlet which focuses on the agricultural sector and as such its results are impacted by the general level of consumer spending in South Africa and the state of the local economy as well agricultural conditions. On 4th October 2021 Kaap Agri announced that it had sold its 70,5% stake in TFC Properties for R446m. On 19th January 2022 the company announced the acquisition of PEG Retail Holdings for R1,09bn. This acquisition increases the number of petrol stations which Kaap Agri has from 43 to 84. In its results for the year to 30th September 2023 the company reported revenue up 42,7% and headline earnings per share (HEPS) up 11,1%. The company said, "The revenue growth was achieved on the back of 64.4 million transactions, an increase of 93.4% year-on-year ("YOY") (1.3% increase excluding PEG). Product inflation ended the year lower than during the prior year and is estimated at 8.0% for the year". Technically, the share was in a downward trend from when it listed in June 2017 and by the middle of 2020 was trading for roughly half of its listing price. It formed a reverse head-and-shoulders formation and broke upwards through its downward trendline on 24th November 2020 at 2500c. After that it rose to R55 in January 2022. Since then it has been falling. We see it as a well-managed company that has exposure to South Africa's retail environment, loadshedding and also to the state of agriculture in this country. It has benefitted from rising petrol prices recently. Issues surrounding expropriation of land without compensation have an impact on the company. However, with a P:E multiple of 5,82 these risks look fully discounted in the share price and it looks like good value.