Mid-cap fast-moving consumer goods (FMCG) counter CA Sales Holdings (CA&S) was listed on the JSE after migrating from the Cape Town Stock Exchange in June 2022. This was part of the unbundling process from PSG Group, which was CA&S’s majority shareholder with 47% of the shares.
In October 2022, IM recommended the counter at 545c, lauding the group’s expertise in the marketing and wholesaling of branded goods on behalf of global brands in South Africa and neighbouring territories. IM set a target price of 850c, which was recently attained on the release of sparkling interim results.
Despite CA&S’s legacy of operating in the domestic and Southern African FMCG sector, the market was unsure about what the company does and what rating should be ascribed to the stock. After the listing and the PSG liquidity event, there was a period of uncertainty from the market towards the business.
So, what does CA&S do? It is a collective of well-established FMCG service businesses operating throughout Southern Africa and anchored by a strong operation in Botswana, Namibia and South Africa. It represents the top 200 local and international blue-chip consumer packed goods brands and has a distribution network of more than 35,000 points of sale.
The company offers a full spectrum of services, from warehousing, logistics, data services and product marketing to brand positioning, to leading brands such as Tiger Brands, Nestlé and Diageo. To put it simply, CA&S is an expert at operating in the informal and formal retail channels in Southern Africa, where others do not have the expertise or network to function as effectively.
After a sparkling financial 2022, when headline earnings rose 31% to 78.2c a share, recent interim results to June 2023 continued the trend.
CA&S has a second-half seasonal bias given the increase in consumer activity in the run-up to the festive period.
The latest interim results showed that revenue rise rose by 22.5% to R5.2bn, with operating profit ahead by 75.5%, to R387m, as the benefits of improved trading and an acquisition filtered into the group. Headline earnings for the six months increased 21.5% to 36.5c a share. The share ran 20% in the results period to hit a 52-week high of 888c; at the time of writing the counter is trading at 820c.
In the period, 50% of sales and 54% of revenue was gained from Botswana, where the economy continues to be robust, unlike in South Africa. Botswana reported a 15% rise in sales to R2.6bn with earnings before interest and tax (ebit) ahead 9% to R107m. With rapid urbanisation and consumerism in the economy CA&S believes growth will continue as it expands its basket and channels its offering of products into the market.
In the period, 50% of sales and 54% of revenue was gained from Botswana, where the economy continues to be robust
Namibia is CA&S’s second-largest territory, and its fastest growing. In the period, benefiting from the January acquisition of Taeuber & Corssen for R123.6m, revenue rose 15% to R759m, with ebit rising 57% to R63m. Management says that as the No 2 in the market, CA&S has material headroom to expand its revenue base.
The company had an ambitious five-year target from its JSE listing of attaining revenue of R20bn. Its 2022 base was R9.5bn.
IM met the CA&S management after the results announcement, and CEO Duncan Lewis was confident of attaining and even exceeding that target. Much of the company’s growth has been organic. Lewis believes CA&S can gain a further R3.5bn of business just from taking existing clients into existing territories. An example is winning the Nestlé business in Namibia, which was worth R300m a year. CA&S has also won new business from Diageo and Premier Milling.
Further expansion into Zambia via organic growth also offers potential, as the economy is transforming after recent government changes. CA&S also wants to expand into Kenya and Tanzania in due course, again piggybacking on long-standing client relationships to enter those markets. These are some of the future growth touch points.
The underlying plan is to extend the marketing and distribution business, where profit margin is far sweeter than in wholesaling. Only 30% of CA&S profit now comes from the former, and the plan is to get the division to 50:50 in the coming years.
Despite the IM’s October 2022 target having been attained, we see the recent profit taking as an opportunity to continue to own and hold CA&S. On a historic p:e of 10.5, with management’s confidence about ongoing growth and a further unwinding of the rating, IM maintains its buy recommendation for CA&S.
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