The share price of KAL Group, which has interests in agriculture and speciality fuel and convenience retail, has been ploughing a narrow furrow between R40 and R50 since 2022.
Despite earnings pushing higher over the past 21 years, the market continues to overlook this R3.5bn value business, which is trading on a modest p:e of 7.6 and a forward p:e of 6.7 on IM’s earnings forecast of R7 a share for the year ended September.
From 2006, KAL has shown consistent growth in headline earnings and dividends, with the company even shrugging off the effects of a one-in-a-100-year drought in the sector in 2017/2018. But whereas famine and pestilence were not enough to hinder KAL, Eskom did, in 2024, cause a temporary dip.
Recent interim results to March further highlight the stock’s resilience. Headline earnings rose 12.5% to 441c a share, with ongoing balance sheet strength and gearing at 32.9% allowing the dividend to increase 25%. Notably, there is a stated aim to sharply improve dividend payouts.
Revenue for the six months rose 5% to R114bn, with operating profit growing 17% to R648m and profit before tax surging 29% to R569m. The business reported solid cash generation and margin enhancement with ongoing improvements on important metrics such as return on capital and investment.
KAL operates throughout South Africa and Namibia with 269 business units. The bulk sits in the 155 Agrimark outlets, many of which have fuel sites, and 84 dedicated large fuel and convenience store outlets under the PEG brand.
First-half sales recorded fuel growth of 5.8% at Agrimark and 7% at PEG, and reasonable growth in retail channels. KAL sold 319Ml in the first six months — typically a 50/50 split between petrol and diesel. Diesel tends to be more resilient given ongoing demand from the commercial transportation and agricultural sector.
Despite the short-term uncertainty, KAL Group is well primed to continue its expansionary growth
Sales from channels were mixed. Within Agrimark, profit before tax rose a modest 4.2%, driven mostly by fuel and agriculture. At PEG, higher fuel volumes were offset by a slightly slower level of growth in retail sales, consumers seemingly visiting more often to top up tanks but tightening belts on convenience store purchases.
Some of the market’s concern over KAL emanates from current uncertainty about fuel and the impact on consumers and the wider agricultural sector of soaring prices due to the Middle East conflict.
With rising fuel prices kicking in only from April (prices were more than 70% higher), the market is justifiably concerned about the wider effect on agriculture and consumer spending. Within agriculture, higher fertiliser and diesel prices are going to hit, but farmers will still need to plant and spend on basic requirements. However, cutbacks in requisite and capital equipment spending may yet be an issue.
The Western Cape storms had some effect on certain regions, though spending on rebuild and expansion, especially in the fruit-sector export markets, aids KAL. Consumer-focused spending, already tight, especially in building materials and general consumer goods, has shown some bright spots in gardening and the decorative sector. What is awaited is the behavioural change from rising costs and whether basket sizes shrink as a greater share of wallet goes towards fuel. This may be capping investor interest in KAL in the near term.
Despite the short-term uncertainty, KAL Group is well primed to continue its expansionary growth with fuel sites, more quick-service restaurants and market share opportunities in agriculture. KAL continues to have market share opportunities in the form of products and services in new agricultural areas without necessarily having to open new outlets. Approvals of delayed fuel licences will also filter into the group in 2026 and with windfall fuel profits of a modest R2.1m in the first half of 2026 the bump in fuel pricing from April should lead to some healthy stock profits to aid full-year numbers.
With an NAV of R52.30 a share, KAL sits on an attractive valuation given the current ruling price. Growth in the second half may be slower than in the interim period until there is resolution in the Middle East conflict and normalisation of fuel pricing. However, the business is resilient, and the agricultural sector remains robust despite concerns over higher seasonal input costs.
IM sees value at KAL Group. Wide sections of the institutional market decry the stock as cheap, especially as a retailer. However, for the short term, KAL may just be a fallow investment despite the longer-term attractions.
The writer holds shares in KAL
