Our opinion on the current state of KAP

KAP International Holdings is a diversified industrial entity in South Africa, with a portfolio that spans timber production, chemical manufacturing (including PET and related chemicals), bedding, automotive parts, and logistics. The company's strategic acquisitions, such as Safripol and Hosaf, have been consolidated into its polymers business, strengthening its market position in the chemicals sector. Despite facing challenges in the automotive parts division, KAP has seen robust growth in its bedding division, buoyed by new investments in infrastructure and manufacturing capabilities.

The full divestiture by Steinhoff, which previously owned 43% of KAP, marks a significant shift in the company's shareholder structure. The extension of the government's Automotive Production and Development Programme (APDP) until 2035 is expected to positively impact KAP's automotive parts manufacturing business, offering long-term support and growth prospects.

KAP's timber division has shown resilience and growth post-lockdown, with sustained demand for its products. However, the automotive components division experienced significant challenges due to the lockdown, with a slow recovery post-restriction lifting. The bedding division, on the other hand, maintained operation throughout the lockdown, catering to medical and agricultural needs, showcasing the diversity and adaptability of KAP's business model.

The flooding in Natal in April 2022 caused temporary operational and supply chain disruptions for KAP's operations in the region, highlighting the environmental and logistical challenges the company faces.

For the six-month period ending on 31st December 2023, KAP reported a slight decrease in revenue by 2% and a significant reduction in headline earnings per share (HEPS) by 36%. Despite these challenges, the company's net asset value (NAV) saw a slight increase of 1% to 478c per share. The decline in EBITDA and operating profit, particularly within the Safripol division, alongside a 20% increase in finance costs due to rising interest rates, underscore the financial pressures confronting KAP.

From a technical analysis perspective, KAP's share price has experienced volatility, reaching a low in March 2020, followed by an uptrend until April 2022, before entering a downward phase. The increased load shedding has further impacted the company's operational efficiency and profitability.

Considering the current market dynamics and KAP's diversified industrial portfolio, the company may offer value at its current price levels. However, potential investors should carefully assess the impact of external factors such as load shedding, interest rate fluctuations, and the overall economic environment on KAP's future performance and growth trajectory.