KAL Group, formerly Kaap Agri, the retail and agricultural hybrid company, has been a consistent performer for IM readers with returns of 33% in 2023 and 35% in 2024.
Despite a disappointing set of financial 2024 results to September from a highly challenging second half in which headline earnings dipped 9% to 561.58c a share, the company’s balance sheet was strong and management was optimistic for a recovery in the new financial year. After the 2024 results, the share price remained sluggish, but at the start of 2025, it began to skid as more challenging economic conditions started to affect the domestic consumer landscape, especially the fuel and general retail sectors.
The KAL Group AGM in early February led to further investor jitters on a softer update for the interim period, alongside concerns that management’s audacious profit goals for 2030 would see a step-change in capex, with some market uncertainty as to where this growth would come from.
Year to date, KAL Group’s share price is down 22%, having bounced off a new 52-week low. Recent interim results to March 2025 justified the market’s caution. KAL said despite an upturn in the wider agricultural segment, which comprises about 27% of year-end trading profits, the uplift was not sufficient to counter tough conditions in the dominant fuel and general retail segments.
For the six months, KAL reported revenue declining by 10% to R10.8bn, as a 16% fall in sales within the PEG fuel unit to R5.6bn dented the period, despite a modest 3% increase in the Agrimark retail subsidiary to R4.4bn. Grain, now a smaller contributor, had a lower harvest, with revenue down 29% to R669m.
Tight control of costs led to a modest 0.9% improvement in gross profit to R1.66bn, which translated to a 4% dip in profit before tax to R441m. Headline earnings fell 4% to 392c a share, but the board approved a 3.7% rise in interim dividend to 56c a share as they were confident in the balance sheet robustness and improved second-half performance.
NAV rose 6.3% from the prior September 2024 year-end to R48.11 a share. With the discount now at 17%, this is one of the widest discounts IM has seen in some years of covering the stock.
Fuel sales represent 58% of revenue. A lower sales mix from a 12.4% decline in like-for-like prices, fuel volumes dropping 2.6% and lower stock profits — despite an improved mix margin from the convenience and quick service restaurant (QSR) offerings — led to the fuel division’s profit falling 11.8% to R115m.
An expansion of the fuel side is under way with five new sites set for the second half
Add in the 10.2% dip in grain profit to R52m and the modest 2.3% increase in Agrimark profits to R302m was not sufficient to offset the negatives in the six months. With continued degearing of the debt taken on to fund the R1.1bn PEG deal in January 2022, gearing fell to 48%, leaving sufficient headroom to fund KAL’s ambitious prospects. An expansion of the fuel side is under way with five new sites set for the second half.
Capex in the six months was contained to R76m. Despite the soft interim results, management buoyed investors with a forecast of a strong recovery in the second half of 2025. A robust Easter trading period at the start of the third quarter continued growth trends and market share gains within Agrimark, as well as a positive Western Cape agricultural sector, planting the seeds for improvement after what has been two mixed sets of results.
Some concerns were sparked with the Trump tariffs and the potential effect they would have on South Africa’s sizeable fruit exports. KAL, via its Agrimark and specialised packaging segment Pakmark, has a material presence in the apple, pear, stone fruit and table grape market.
With a sputtering of what was a solid growth story within KAL, the unwinding of the earnings multiple to a low 7.1 and a wide discount to NAV, this quasi-retailer can be regarded as cheap relative to its peer review sector.
But KAL is not a classic retailer. Its focus on fuel and a growing convenience store and QSR offering is blended with its smaller, more traditional agricultural operations. This means KAL Group sits in a no-man’s-land rating comparative. It’s caught between sectors — and this has been its Achilles heel.
Management has much to prove to attain its R1.5bn 2030 profit target as the last line in the sand — the R1bn profit target — was missed.
For two months, KAL’s share price has been basing at R40. This seems to be the floor. Given the low market rating and internal exuberance for the second-half recovery in this financial year, IM believes management will prime the pump to recover its poise.
IM places a cautious buy on the stock, geopolitics withstanding, and awaits with interest the year-end to September results.
* The writer holds shares in KAL Group.
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