SOUTH AFRICA - Unlisted Kaap Agri reported bumper profits in the year to end-September, but expects a tougher financial year ahead as drought conditions take hold in its main markets.
At the weekend, the Western Cape-based company, which has PSG-aligned Zeder Investments as its biggest shareholder, reported a 16% increase in bottom line profits to R183m (259c per share) off a 8.5% gain in turnover to R7bn.
Kaap Agri also hiked its final dividend 26% to 58c per share, bringing the payout for the year to 82c per share.
But MD Sean Walsh warned that agricultural conditions in the Swartland grain production area were under severe pressure, with only one-third of the normal rainfall levels recorded.
He said the wheat crop was estimated at 40% below average, and this would have a direct effect on Kaap Agri’s grain handling and storage revenue.
Mr Walsh said agricultural conditions in other production areas in which Kaap Agri operated were also under pressure due to the ongoing drought.
But the company would not abandon its growth strategy. "We’ll even accelerate new growth opportunities, geographically and through offerings to existing and new markets."
Agribusiness investment expert Anthony Clark of Vunani Securities said it was encouraging that Kaap Agri pipped his 255c per share headline earnings prediction as the company managed to claw back some of the first-half fuel sale losses.
He said the strength of the balance sheet and cash flow was pleasing, and pointed out that at an over-the-counter share price of R30.75, Kaap Agri was trading on an earnings multiple of 11.9 times and a dividend yield of 2.7%.
"If this was a JSE-listed counter … I’d see value to R40," Mr Clark said.
If Zeder wanted to buy out Kaap Agri’s minority shareholders, the offer price would need to be "in the high R40 region".
Kaap Agri has been a strong performer in recent years, outperforming many of its listed counterparts.
Mr Walsh said Kaap Agri had exceeded its 15% growth target for the fourth year in a row.
"Measured over the four-year period, the total increase in headline earnings of 133% translates into a compound annual growth rate of 23.5%."