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About Kaap Agri
Kaap Agri had its origins when a few farmers in the Swartland decided to jointly buy guano (bird manure) to use as fertilizer. This led to formally establishing De Westelike Graanboeren Koörporatiewe Vereniging in 1912. Over the years the company expanded with a branch and silo network in the Swartland and the Boland. From 1930 to 1950 various other cooperatives were established in neighboring towns and areas. They all basically delivered the same functions as Wesgraan. In 1981 the first large amalgamation took place when Western Province Fruitgrowers and Wesgraan joined forces to form WP (Koörperatief) Beperk. Since then further amalgamations have taken place with Drakenstein Vrugtekwekers and Wynland Koöperasie.
In 1995 WP (Koörporatief) was converted to a public company, WPK Landbou Beperk. This was the first of the former cooperatives that converted from a cooperative to a company. In the meantime, Porterville Landboukoöperasie and Noord-Boland Koörporasie amalgamated to form Boland Agri. The current Kaap Agri had its origins when WPK and Boland Agri amalgamated in 2005. Today the Kaap Agri area of operation includes the Swartland, Boland, Wynland, Overberg, Langkloof, Namaqualand, Orange River, Sundays River Valley, Namibia, and the areas in between, as well as Limpopo, Mpumalanga and Gauteng. Therefore Kaap Agri’s area of operation is Southern Africa.
The Group specialises in trading in agricultural, fuel and related retail markets in Southern Africa. With its strategic footprint, infrastructure, facilities and client network, it follows a differentiated market approach. In support of the core retail business, the Group also offers financial, grain handling and agency services. Kaap Agri has over 200 operating points located in eight of the nine South African provinces as well as in Namibia.
The image below shows Kaap Agri's corporate profile:
In 1995 WP (Koörporatief) was converted to a public company, WPK Landbou Beperk. This was the first of the former cooperatives that converted from a cooperative to a company. In the meantime, Porterville Landboukoöperasie and Noord-Boland Koörporasie amalgamated to form Boland Agri. The current Kaap Agri had its origins when WPK and Boland Agri amalgamated in 2005. Today the Kaap Agri area of operation includes the Swartland, Boland, Wynland, Overberg, Langkloof, Namaqualand, Orange River, Sundays River Valley, Namibia, and the areas in between, as well as Limpopo, Mpumalanga and Gauteng. Therefore Kaap Agri’s area of operation is Southern Africa.
The Group specialises in trading in agricultural, fuel and related retail markets in Southern Africa. With its strategic footprint, infrastructure, facilities and client network, it follows a differentiated market approach. In support of the core retail business, the Group also offers financial, grain handling and agency services. Kaap Agri has over 200 operating points located in eight of the nine South African provinces as well as in Namibia.
The image below shows Kaap Agri's corporate profile:
Kaap Agri Corporate Profile
Financial results
The following was published on the JSE Security Exchange News Syteme (SENS) system earlier today
- Revenue: R6.548 billion (up 2.07% from R6.415 billion in the prior year)
- Profit for the period: R248.9 million (up 3.2% on R241.1 million in the prior year)
- Recurring headline earnings per share up 0,7% to R3.54 cents (placing them on a PE ratio of 10.16)
- Cash generated from operations: R237 million (or R3.38 per share)
- Net asset value per share: R24.84 (up 10.6% from R22.45 in the prior period). Thus trading at 1.47 times their book value. (Not unusual for entities to trade at double its book value). So this might hint and share being under valued
- Cash and equivalents: R40.2 million (up roughly 14% or R5 million on the prior year).
- Cash per share on balance sheet: R0.57 a share
- Final dividend per share up 2,5% to R0.847
- Total dividend per share up 4,2% to R1.167 (placing them on a dividend yield of 3.2%)
From the slow growth in revenue and recurring headline earnings per share (main measure of profit per share) reported it is clear that the group is still struggling to gain momentum after the drought in the Western Cape. While any positive growth number will be a relief, one would hope future reporting periods would see stronger growth than the low single digits reported. We predict that there will be large number of mergers and acquisitions in the group's future as it looks to expand more into other provinces in South Africa (one such acquisition by the group is mentioned in the management commentary below (under outlook).
Management commentary on the financial results
Operating overview
Income growth from the Trading division, which includes the Agrimark retail branches, Pakmark packaging material distribution centres, mechanisation services and spare parts was down 0,3% year on year with operating profit before tax increasing by 9,4%. The impact of equity accounting KAN negatively impacted income growth by 9,5%. Improved agri and retail margins have been partially offset by agricultural related fuel sales at reduced margins.
Significant growth was realised in TFC with income growing 30,1% and operating profit before tax increasing by 34,5%. This division is expected to continue reflecting ongoing strong growth. Wesgraan, which includes grain handling and storage of grain and related products, seed processing and potato seed marketing, was heavily impacted by the drought and lower wheat volumes and income dropped by 38,2%, resulting in a decrease in operating profit before tax of 54,5%. This performance is expected to recover to normalised levels in the new year off significantly improved wheat harvests.
Irrigation manufacturing, also impacted by drought conditions in the Western Cape but partly offset by positive agricultural conditions in the northern parts of the country, grew income by 3,2% and operating profit before tax by 2,8%.
The Corporate division, which includes the cost of support services as well as other costs not allocated to specific segments, represents 1,4% of turnover (2017:1,7%). Treasury income, which represents the net internal interest received less interest paid, decreased by 18,5% due to increased gearing used for expansion and growth purposes.
Outlook
Agricultural conditions in the Western Cape have largely improved year on year and farm dam levels are in a good position. Currently the outlook for a vastly improved wheat harvest and a normalised year in the fruit and vegetable environments is positive. The wheat harvest commenced in late October and indications are positive regarding total yield and quality. Conditions in the northern regions of the country are encouraging. The issue of expropriation without compensation is having an impact on confidence as well as expansions in the agricultural space. Retail sales and general retail performance remain under pressure with glimpses of improvement starting to emerge.
The November and December trading performance, being strong retail months, will give a better indication as to whether a sustained retail recovery is underway. Weakening exchange rates will negatively impact product and raw material imports. The past year has been a challenging one, but our various growth strategies have partially mitigated the impact of the drought. We have continued on our path of selective strategic revenue generating expansion and acquisition and immersed ourselves in the customer experience to ensure that sustained and mutually beneficial engagements and relationships will continue. We believe that the continued focus on our strategic goals will contribute to the business recovering from the subdued 2018 performance and we remain on track to achieve our strategic medium-term plan growth targets of a minimum 15% CAGR in RHE at a minimum ROE of 15%.
Income growth from the Trading division, which includes the Agrimark retail branches, Pakmark packaging material distribution centres, mechanisation services and spare parts was down 0,3% year on year with operating profit before tax increasing by 9,4%. The impact of equity accounting KAN negatively impacted income growth by 9,5%. Improved agri and retail margins have been partially offset by agricultural related fuel sales at reduced margins.
Significant growth was realised in TFC with income growing 30,1% and operating profit before tax increasing by 34,5%. This division is expected to continue reflecting ongoing strong growth. Wesgraan, which includes grain handling and storage of grain and related products, seed processing and potato seed marketing, was heavily impacted by the drought and lower wheat volumes and income dropped by 38,2%, resulting in a decrease in operating profit before tax of 54,5%. This performance is expected to recover to normalised levels in the new year off significantly improved wheat harvests.
Irrigation manufacturing, also impacted by drought conditions in the Western Cape but partly offset by positive agricultural conditions in the northern parts of the country, grew income by 3,2% and operating profit before tax by 2,8%.
The Corporate division, which includes the cost of support services as well as other costs not allocated to specific segments, represents 1,4% of turnover (2017:1,7%). Treasury income, which represents the net internal interest received less interest paid, decreased by 18,5% due to increased gearing used for expansion and growth purposes.
Outlook
Agricultural conditions in the Western Cape have largely improved year on year and farm dam levels are in a good position. Currently the outlook for a vastly improved wheat harvest and a normalised year in the fruit and vegetable environments is positive. The wheat harvest commenced in late October and indications are positive regarding total yield and quality. Conditions in the northern regions of the country are encouraging. The issue of expropriation without compensation is having an impact on confidence as well as expansions in the agricultural space. Retail sales and general retail performance remain under pressure with glimpses of improvement starting to emerge.
The November and December trading performance, being strong retail months, will give a better indication as to whether a sustained retail recovery is underway. Weakening exchange rates will negatively impact product and raw material imports. The past year has been a challenging one, but our various growth strategies have partially mitigated the impact of the drought. We have continued on our path of selective strategic revenue generating expansion and acquisition and immersed ourselves in the customer experience to ensure that sustained and mutually beneficial engagements and relationships will continue. We believe that the continued focus on our strategic goals will contribute to the business recovering from the subdued 2018 performance and we remain on track to achieve our strategic medium-term plan growth targets of a minimum 15% CAGR in RHE at a minimum ROE of 15%.
Kaap Agri (KAL) share price history
The image below shows the Kaap Agri share price history (both for when it was trading at over the counter and now trading as a listed entity on the JSE. And as the iamge below shows, when it listed on the JSE it was trading at around R60 a share. Currently it is well below R40 a share. Largely thanks to the impact of the drought on the Western Cape, where the bulk of their operations are in.
Kaap Agri (KAL) share valuation
So should you buy Kaap Agri shares. Well one has to remember a few things. Earnings for firms such as Kaap Agri tends to be very volatile. As it is largely dependent on the weather. And due to this there wont be a lot of interest or trading in the share, which could make buying a sizeable amount of shares difficult to buy or sell. And the spread (difference in price between buyers and sellers of the shares) might be very big due to the illiquid nature of the shares. So before considering buying Kaap Agri shares just take note of this.
Based on their current financial results, their cash generation, their balance sheet and their current net asset value (NAV), we value the group at R41.69 a share. We therefore feel there is some value to gained by investors buying and holding the shares at its current trading price of R36, or perhaps even below that if investors can get their hands on the shares at a lower price. But being rewarded with Agri related shares often takes a very long time. Thus not for impatient investors looking to trade the share, or those expecting significant market movements in the shares regularly.