Our opinion on the current state of KAL

Kaap Agri, part of the KAL Group, is an agricultural company predominantly owned by Zeder, which itself is significantly held by PSG. The company operates more than 190 retail outlets, offering a diverse range of products and services primarily to the farming community. Kaap Agri's business is structured into seven divisions: Pakmark, which supplies packaging materials especially for the fruit industry; Agrimark, with over 70 stores in South Africa and Namibia providing animal feeds, gardening and outdoor equipment, and pet accessories; Liquormark, offering a broad selection of liquor products; Kaap Agri Mechanisation, which deals in farming machinery and equipment; Wesgraan, specializing in grain handling and management services; Expressmark, focusing on fuel supply mainly to the farming sector along with convenience stores; and The Fuel Company (TFC), aspiring to lead the independent fuel retail market in South Africa.

The group's diverse product range mitigates its exposure to weather-related risks in the agricultural sector, particularly in the Western Cape. Nonetheless, as a retail entity centered on the agricultural industry, its performance is influenced by consumer spending levels in South Africa, the overall state of the economy, and agricultural conditions. On 4th October 2021, Kaap Agri announced the sale of its 70.5% stake in TFC Properties for R446 million. Further expanding its operations, on 19th January 2022, the company acquired PEG Retail Holdings for R1.09 billion, doubling its number of petrol stations.

For the year ending 30th September 2023, Kaap Agri reported a 42.7% increase in revenue and an 11.1% rise in headline earnings per share (HEPS), driven by a significant uptick in transactions and a moderated product inflation rate estimated at 8.0% for the year. The three-month update to 31st December 2023 showed a revenue increase of 3.4% and a 6.9% rise in recurring headline earnings. Fuel sales performance was notably resilient, considering the broader industry's volume decreases.

Since its listing in June 2017, Kaap Agri's shares initially trended downward, halving in price by mid-2020. However, a reverse head-and-shoulders formation marked a change in trajectory, with the share price breaking through its downward trendline in November 2020 and reaching R55 by January 2022. A subsequent downtrend was reversed in November 2023, signaling the start of a new upward trend. The company is well-managed with exposure to South Africa's retail environment, loadshedding, and agricultural conditions, recently benefiting from rising petrol prices. Despite concerns over land expropriation without compensation, the current P:E multiple of 6.47 suggests these risks are already reflected in the share price, indicating good value. Kaap Agri's integrated annual report forecasts over R1 billion in pre-tax profits by 2025, underscoring its positive outlook.