Kaap Agri results reflect resilience and good agricultural conditions

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Kaap Agri CEO Sean Walsh says the group's performance shows the resilience of its growth and diversification strategy.
Kaap Agri CEO Sean Walsh says the group's performance shows the resilience of its growth and diversification strategy.
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  • Kaap Agri specialises in agricultural, fuel and related retail markets in Southern Africa.
  • During the financial year ended in September 2021, the group's revenue increased by 23.4% to R10.6 billion compared to the previous financial year.
  • The total dividend for the full financial year is R1.51 per share compared to 50 cents per share in the previous financial year.

Although the operating conditions for Kaap Agri continued to be affected by the Covid-19 pandemic during its financial year which ended in September 2021, the impact was limited owing to the easing of lockdown restrictions. 

Kaap Agri specialises in agricultural, fuel and related retail markets in southern Africa. The group has 226 business units located in eight South African provinces, as well as in Namibia.

During the financial year the group's revenue increased by 23.4% to R10.6 billion compared to the previous financial year, off the back of a 17.% increase in the number of transactions. 

Recurring headline earnings per share grew by 21.7% to 477.55 cents. A final dividend of R1.11 per share was declared. That brings the total dividend for the full financial year to September 2021 to R1.51 per share compared to 50 cents per share in the previous financial year.

The Fuel Company (TFC) - the group's retail fuel and convenience store business - was the hardest-hit by Covid-19 restrictions due to changes in consumer driving patterns, as well as lockdown-related reductions in travel and road transport. TFC, however, still succeeded in achieving 23.3% higher sales than 2019 levels.

According to Kaap Agri CEO Sean Walsh, the group's performance shows the resilience of its growth and diversification strategy.

"Agricultural conditions in the areas in which we operate have largely been positive. Certain areas remain under pressure, particularly the Eastern Cape and northern regions of the country. Good rainfall throughout the wheat season has resulted in high expectations for the coming wheat harvest, with all indications pointing to an above average yield across the total Swartland region," says Walsh.

Nevertheless, concerning trends in the agri environment include rising input costs, curtailed capacity expansion and logistics challenges, specifically those related to exports.

"The Covid-19 situation is monitored closely, and all necessary protocols remains embedded in our daily operations. The group's balance sheet has strengthened during the period under review and cash generation has improved. We will continue to investigate value-enhancing opportunities and we will soon be completing a new store format concept in the urban area of Somerset West," says Walsh.

For Walsh the most outstanding aspect about the results is it was that most divisions - fuel and Agrimark and grain - performed well.

"This is due to the efficient execution of our strategy to diversify our footprint and stock assortment and to digitise our customer interfacing," said Walsh. "I think we have shown a level of resilience during the pandemic as well as being able to overcome challenges like load shedding."

Asked what the biggest lesson was he learnt during the pandemic, he says that, employees will make a plan if one just gives them direction.

Looking ahead, he still foresees a lot of volatility over the next three to six months on the logistics and supply chain side, mainly due to shipping constraints, increased costs to import and export and inefficiencies at local ports.

Analyst Anthony Clark of Small Talk Daily Research regards the Kaap Agri results as highly commendable.

"Their previous set of earnings showed how resilient the company was despite the pandemic. That is one of the benefits of having a very diversified base with a core around agriculture, which over the last couple of years have significantly recovered from a devastating drought in the Western Cape," says Clark.

In his view, the investment that has been made in the horticulture and fruit side and what will be a second good year of the wheat harvest has really powered the underlining growth in Kaap Agri's earnings and profitability.

"All in all, at the current share price, I have a 'buy' on the stock. Since 19 November 2020, when it was at R23.80, the stock has more than doubled. I am forecasting another good year ahead for agriculture. I am maintaining my 'buy' on the stock with a target value in the near term of R54," he concludes.

By mid-morning, Kaap Agri's share price was down 1.10% to R44.75 a share.

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