Zeder subsidiary KaapAgri (KAL) listed on the ‘speciality retailer’ sector of main board of the JSE on Monday morning at R58.60, valuing the company at about R4.1 billion.
The agricultural services company, whose history dates back to 1912, has three core divisions Agrimark, Pakmark and The Fuel Company, from which approximately 80% of the group’s income is generated.
Agrimark branches represent the core business of the group with over 70 outlets countrywide. These are essentially general retail offerings including retail shop areas, bulk stores areas and yards for bulk items.
Pakmark branches service the fruit and vegetable farming sector with packaging materials. There are 14 stand-alone centres with an additional 8 facilities managed in conjunction with Agrimark stores.
The Fuel Company brand is a focus for future growth. It has two arms – retail and fuel. Expressmark is Kaap Agri’s home grown convenience offering for those service stations that are not oil company owned but owned and operated by Kaap. There are 25 retail fuel and convenience service stations in The Fuel Company and a further 14 straightforward fuel stations. Strategically the company is not aligned to any particular oil supplier.
Kaap also has investments in silo storage, grain handling and trading; an irrigation business and liquor outlets, which complement the AgriMark business. It is also one of the largest agents for New Holland farming equipment in SouthAfrica.
While the company will not be raising additional capital at this listing, the move to the JSE was prompted by a desire to access capital needed for organic and acquisitive growth; to provide shareholders with a liquid, tradable asset – the shares were previously traded over the counter; and to increase the public profile of the company.
The move to the JSE has already prompted a substantial re-rating, says small cap analyst Anthony Clark who has been agitating for the listing since the beginning of 2016. In February Kaap was trading at an OTC price of 4000c, with a market cap at the time of R2.9 billion. “This company has great prospects and the listing on the JSE should unlock further value for both Kaap and shareholder Zeder,” he says.
“I believe a ‘fair’ opening price for the stock is 6000 cents and I have a target price of 8000 cents based on my long-standing FY18 HEPS of 352cps (+18%) placing the counter on a prospective PE rating of 15.6x to September 2018.”
The only caveat to the listing, he says, the fact that the share is very tightly held. Only 74 million shares were listed, and of these Zeder and management own about 45%. “This may hinder liquidity and may slow share price appreciation slightly.”
However there was speculation at the PSG AGM last week that management may in due course place more paper to ease liquidity concerns and to raise capital for future aggressive acquisitions.
In the six months to March 2017 revenue increased by 13.7% to R3.5 billion, supported by inflation of 4.6% for the period. Real comparable stores turnover grew by 11.7% with good growth coming from the retail and fuel businesses.
Trading profit grew at a rate higher than that of the turnover growth in all areas as a result of improved procurement and a changing product mix. Profit before tax and interest paid increased by 16.9% compared to that of last year and recurring headline earnings increased by 12.3% to R146.6 million.
Recurring headline earnings per share increased by 12.3% to 208.05 cents per share. Net asset value per share increased by 11.7% to R21.32 per share.