Kaap Agri adds fuel to acquisition campaign in Gauteng and Limpopo

Kaap Agri, the recently listed farming community retailer, has started revving its engines for an acquisition drive.

On Monday, Kaap Agri – which has PSG-aligned Zeder as a large investor – announced the acquisition of three retail fuel operations and properties in Gauteng and Limpopo from empowerment company C-Max Investments and Bird Fuel Trading for R132m.

Kaap Agri is an agricultural services conglomerate with a fast-growing retail hub that includes the well-known Agrimark stores as well as convenience stores and liquor outlets.

Kaap Agri said the acquisition formed part of the growth strategy for its The Fuel Company (TFC) brand – which comprises retail fuel operations as well as convenience and quick-service restaurant offerings.

Kaap Agri estimated that the deal would boost its fuel sales by 20-million litres a year. In the year to end-September the company’s TFC operations sold about 91-million litres of fuel.

Kaap Agri CEO Sean Walsh said the fuel operations acquired in Gauteng and Limpopo were high-quality assets that would complement TFC’s existing retail fuel operations .

The deal would also result in C-Max Investments becoming an empowerment shareholder in TFC. The deal will be settled by the issuing of shares in TFC’s operating and property subsidiaries. Kaap Agri indicated that the acquired fuel operations generated profit after tax of R8.7m – based on earnings before interest and tax of R12.1m that were reflected in unaudited management accounts for the 12 months to July 2017.

The company, however, pointed out that two of the three retail fuel businesses had only been operational for less than six months.

Kaap Agri said these assets were expected to make a meaningful contribution in future to the earnings of TFC – pencilling in normalised earnings before interest and tax contribution of around R22m when operational maturity was reached.

Vunani Securities analyst Anthony Clark said the acquisition formed part of Kaap Agri’s ambition to grow fuel sales from the current 13% of revenue to 30% within three to five years.

“Fuel will be a main thrust for Kaap Agri going forward, and a move into the faster-growing heartland of SA is good news.” Last week, Kaap Agri issued an upbeat trading update, indicating a 13% rise in sales to R8.6bn.

Recurring headline earnings should come in between R244m and R248m – an increase of between 16% and 18% compared with the 2016 financial year.