KAL Group, formerly retail and agriculture hybrid company Kaap Agri, has been a consistent performer for IM readers with returns of 33% in 2023 and 35% in 2024.
But 2025 brought a reversal of that trend as a mixed corporate update at the February AGM and softer interim results to March, where headline earnings per share (HEPS) dipped 4% to 392c, took the shine off KAL.
In a May review of KAL’s year-end 2025 results, IM saw the opportunity in the beaten-down counter and placed a buy at R39.90 in expectation of better times to come. From a 52-week low of R36.69 on September 17, KAL has rallied 20% as the market wakes up to the possibility that second-half trading may have been better than expected.
With year-end results to September ahead and a base of 561c a share, IM estimates HEPS will come in close to 637.5c — which places KAL on a forward p:e of 6.9.
Financial 2024 is a period KAL management would probably want to forget. In a tough consumer environment with significant fuel price deflation, earnings fell 9%, though the dividend for the period was held flat at 180c a share.
Despite positive earnings growth from KAL’s agricultural subsidiaries, the overall contribution from agri as a percentage of profit is now less than 30%. Growth in agri was not sufficient to counter diminished results from the larger fuel, convenience store and quick-service restaurant (QSR) units where KAL has been expanding. For the six months, KAL reported revenue down 10% to R10.8bn due mainly to a 16% fall in sales in the PEG fuel unit to R5.6bn. A modest 3% increase in the Agrimark subsidiary to R4.4bn eased the pain somewhat. Grain, now a smaller contributor, reaped revenue of R669m, 29% down.
Tight control of costs saw a modest 0.9% improvement in gross profit to R1.66bn, which translated to a 4% dip in profit before tax to R441m. Though HEPS dropped, the board approved a 3.7% increase in the interim dividend to 56c a share as it was confident about balance sheet robustness and improved second-half performance.
Despite the tepid interims, IM believes KAL Group had much stronger second-half trading with recovery evident in most business units
Despite the tepid interims, IM believes KAL had much stronger second-half trading, with recovery evident in most business units. Agri has been stronger. Commercial fuel sales are up. General convenience should be flat but better than prior periods, with the large PEG retail fuel business recovering and the PEG convenience stores seemingly back in positive territory.
This reinforces IM’s buy recommendation from five months ago. In May, IM suggested one of the doubts the market has about KAL is the perceived lack of a cohesive business strategy. KAL is not a classic retailer. Its focus on fuel and a growing convenience store and QSR offering, melded with the traditional, but smaller, agricultural operations, means KAL sits in a no-man’s land as regards a rating comparison. This has been its achilles heel as a quasi-retailer.
Recent developments may resolve some of this market angst. KAL sold its manufacturing assets Agriplas, the irrigation business, and Tego, the plastic fruit-bin operation, in late September — netting, IM believes, a total of R317m, or 426c a share (or 10% of KAL’s valuation). The sale of these assets, which were seen as a distraction, focuses the business back into agriculture and the retail and fuel assets.
Further investor cheer should be gained from KAL’s robust balance sheet. IM estimates it will be its strongest in 15 years, with the inflow from asset sales padding the corporate wallet. KAL has mooted improving its dividend payout. With the sale of the agricultural assets and the unwind of the PEG debt, IM envisages much fatter dividends ahead and potentially even a partial special from recent asset sales.
KAL is not standing still. Expansion of the fuel and convenience silo remains a priority with delayed licences and sites coming into the fold into the new financial year. Plans are to grow the footprint by between five and eight sites annually. This is a necessity if management is to attain its 2030 R1.5bn profit target — especially as the last line in the sand, the R1bn target, was missed.
Given the lowly earnings multiple and internal exuberance for a second-half earnings recovery, FM believes management will prime the pump to recover some poise into financial 2026.
* The writer holds shares in KAL Group
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