Fast-moving consumer goods (FMCG) collective CA Sales (CA&S) is a stock that may be familiar to readers, as IM has consistently recommended the counter since October 2022 at 545c a share, with subsequent reviews and target updates all made and exceeded.
The group has just released interim results to June and is worthy of a revisit. In the past 12 months, CA&S has risen 77%, and 41% in the year to date, with the stock now trading at a historic p:e of 15. While IM believes much of the easy money has been made in CA&S, solid long-term prospects remain as the company continues its territorial expansion with gentle inroads under way into what could in time be a vast new market: East Africa.
CA&S reported pleasing sales, with revenue rising 9.2% to R5.7bn. An accounting issue relating to a bargain purchase gain in the period of R124m resulted in operating profits in the interim period dropping 21% to R305m. Stripping this out, headline earnings rose 20% to R207m. Headline earnings for the six months rose 19.2% to 43.45c a share.
The company traditionally has a stronger second half as the festive seasonality kicks in. Management reiterated its standing revenue target of R20bn by 2026, with organic growth the main feature and a bolt-on acquisition planned in Kenya to meet objectives.
CEO Duncan Lewis has told IM that the core of CA&S’s growth target is “taking existing clients plus existing brands into new areas of activity … that is the easiest R3.5bn of sales the group can see”. For the period, Botswana remained CA&S’s largest market, representing 50% of revenue, with Eswatini (15%), Namibia (18%) and South Africa (15%) making up most of the balance. The market in Namibia, where CA&S has high ambitions, is in transition.
The acquisition of Taeuber & Corssen in 2023 for R65m brought a period of restructuring, with a 2.5% dip in revenue to R1bn as management exited certain client relationships. As CA&S products flow into Namibia, revenue growth is expected into 2025.
The No 1 player in Namibia is a former incarnation of CA&S, now owned by Imperial Logistics. CA&S, knowing the market well and with a vast client relationship base, remains confident that the R2.1bn FY2023 revenue will grow to R4bn in time.
Taking more products from more clients into existing and new territories is how CA&S has achieved growth
A new territory CA&S plans to enter is East Africa, with Kenya as its initial hub. The aim is to extend its interests into neighbouring countries. The potential is enormous as CA&S offers its existing clients the opportunity to partner in expanding into the region. Kenya alone has a population of 54-million people, and neighbour Uganda has 47-million. As a comparative, Botswana, with a population of 2.6-million people, generates annual revenue for CA&S of R5.7bn and profit of R269m. Growth won’t occur overnight, but management is confident of the long-term prospects for East Africa.
Despite a challenging consumer environment, South Africa recorded 21% growth in interim revenue to R874m, aided by acquisitions in the liquor distribution space. Profit rose by 28% to R77.6m. In Botswana revenue rose 8% to R2.85bn and profit 25% to R133m.
With regard to smaller local territories, CA&S has ambitions in Lesotho, which has a population of 2.3-million, compared with 1.2-million in Eswatini. Eswatini generated first-half revenue of R840m and profit of R71.2m, the tiny country being as meaningful to CA&S as its encompassing neighbour, South Africa. This highlights the potential of Lesotho, CA&S says.
Taking more products from more clients into existing and new territories is how CA&S has achieved growth, and it plans to take this further with its territorial expansion. As urbanisation and consumerism grow in Africa, global brands want to enter this emerging market. CA&S has decades of expertise with that.
At current levels, CA&S is 5% off its recent 52-week high. The stock has had a period of significant interest from institutions buying into the African FMCG growth story. Much of the rerating has occurred since its unbundling from PSG Group in late 2022 and investors now await further delivery of management's expansionary strategy.
IM foresees a more subdued period for the share after a heady run. For private investors wishing to accumulate a counter with solid growth legs, IM continues to recommend the share as a buy and sets a revised target, in due course, of R20.
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