IM has consistently recommended KAL Group as a buy, with the company delivering total returns of more than 33% in both 2023 and 2024.
Last year also started well, but an ambiguous strategic update at the AGM that February unnerved the market. This was compounded when interim results to March showed bottom-line profits sliding 4% when the market was expecting growth.
The share price slumped during the course of 2025 to hit a 52-week low of R36 in early September.
What the market, in its apathy, failed to appreciate was that KAL was having a blistering second half in 2025. The weakness seen in the first half was just an unfortunate speed bump in a stock that for 15 years has delivered solid compound average growth rates of 15% a year.
By November, with the release of the results for the year to September, the smart money had cottoned on, and the stock had rallied 25% to nearly R50.
Headline earnings per share (HEPS) for the period, at 621c, were a record for KAL, and the upbeat narrative from management allowed the stock to show a modest 6% return for the year (including dividends).
As a hybrid retailer, KAL has touchpoints in agriculture that account for about a quarter of profits. The balance comes from a mix of fuel outlets, convenience stores and other general retail stores in the Agrimark chain.
With no direct comparative business, it’s been difficult for the market to value the stock. Its JSE listing, a move from the over-the-counter market in 2017, led to an initial flurry of interest. The unbundling in 2022 of majority shareholder PSG Group’s 41% stake aided liquidity.
Many recognise that at R48 and an earnings multiple of 7.8 the stock is cheap for the retail sector, but KAL is not seen as a classic retailer, so it sits in no-man’s land when it comes to valuation parameters.
Institutional investors seem to struggle to understand the company, so ownership remains low. Management has tried to address this issue by having investor engagement sessions and site visits.
The balance sheet is solid, with gearing under 40% and an enviable debtor book. Bad and doubtful debts are minuscule relative to the sector.
A policy of upping the dividend has been adopted, with the aim of paying 2.5 times cover. Even share buybacks of the R3bn market capitalisation business have been considered.
With no direct comparative business, it’s been difficult for the market to value the stock
Yet, despite the solid 2025 results, the stock is range-bound around R50 and needs a catalyst to break higher.
The tone at this year’s AGM was upbeat, with management reiterating its ambitious profit target of R1.5bn by 2030. The heads of the largest operating units — Agrimark and PEG Retail Operations (which operates a network of fuel service stations) — were positive on growth targets. IM suspects that the target of 13.4% recurring HEPS, as mentioned in the voluntary earnings update of February 5, will probably be exceeded in the period to the release of the March interim results.
The sudden retirement of Sean Walsh, CEO for 14 years, came as a surprise; some might contend that 60 is no age for retirement in the modern era.
IM sees nothing untoward about his departure. Walsh was ready to leave. But the timing of the announcement was tied to an unrelated move in Zeder Investments.
The sale of Zeder’s last and largest asset, Zaad, was announced in early February. Thus, the need for Zeder (and its CEO) to exist was moot.
KAL chair George Steyn told the AGM that Walsh is stepping down and will be succeeded by Johann le Roux, previously CEO of Zeder. Steyn tells IM that a thorough vetting process for internal and external candidates was undertaken. It was decided that Le Roux had the right credentials, knowledge of the company (as a long-standing nonexecutive director) and age to carry KAL forward.
It seems Le Roux’s appointment has generated mixed feelings from some institutional shareholders. With KAL essentially being a retailer, some have asked why an executive with extensive retail experience was not appointed.
However, IM believes that Arno Abeln, MD of Agrimark, and Xolisa Bangazi, MD of PEG, are excellent at managing their operations. Le Roux’s brief will be capital allocation and long-term strategy. Given his extensive corporate finance background, KAL will need to undertake some deals to meet and exceed its 2030 growth target.
Steyn said Le Roux needs to be given the opportunity to lay out his vision for KAL in the coming months before the interim results.
A transition from an old hand to a new broom, especially for a well-established business, is never easy. But IM believes Le Roux’s appointment, once properly articulated, will soothe nerves.
With a return to past growth levels likely and positive first-half guidance, the scene is set for KAL to return to better earnings and share price performance in 2026. IM places a firm buy on the stock with an ultimate target of R64.
Anthony Clark
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