Mixed fortunes for niche retailers

• Trading updates show contrasting effect of prolonged drought on agri retail and that of stronger rand on imports

Two of the JSE’s niche retailers — farmer-focused Kaap Agri and directselling specialist Verimark — issued trading updates on Thursday that prompted contrasting market responses.

Two of the JSE’s niche retailers — farmer-focused Kaap Agri and direct-selling specialist Verimark — issued trading updates on Thursday that prompted contrasting market responses.

While Kaap Agri’s shares sagged slightly on a downbeat update, Verimark’s soared by more than a third on news of markedly stronger earnings.

Kaap Agri reported that the prolonged drought had affected agri retail sales, with revenue for the six months to end-March increasing 5.1% to about R3.4bn. Like-for-like comparable sales growth was only 2.9%.

Kaap Agri said the growth in the value of business transacted was driven mainly by a 17% rise in the number of transactions.

Drilling down into operations, Kaap Agri said non-agri retail sales continued to show strong growth despite subdued consumer spending and low economic growth.

It noted that fuel retail expansion continued with existing and acquired sites performing well. Kaap Agri’s fuel subsidiary, The Fuel Company (TFC), grew fuel volumes by 40.5% in owned and managed sites.

TFC site acquisitions were at various stages of conclusion.

Improved revenue growth was expected for the next six months as consumer confidence recovered.

Store upgrades and expansions were expected to contribute more significantly.

In a note to clients, FNB Securities said the Kaap Agri trading update showed a weaker than anticipated performance. FNB had pencilled in top-line growth of closer to 10%, noting Kaap Agri’s price inflation was slightly disappointing.

FNB said it did expect an improvement in the company’s second-half trading.

Verimark, on the other hand, expects bumper profits in the year to end-February, pointing out that the stronger rand and the introduction of a greater number of products had boosted sales and profits.

Verimark imports a large portion of its product range, and a weaker rand has been known to play havoc with top-line and operating margins as import costs can often not be fully reclaimed in price increases. Verimark added that a reduction and containment of costs also buoyed its bottom line.

The company expects to deliver profit before taxation of between R43m and R50m, which would beat the 2017 figure by between 15.1% and 35.1%.

Headline earnings are expected to range between 29.5c per share and 34.3c per share, ahead of 2017’s numbers by between 23% and 43%.

Verimark is known for its generous dividend policy, which could explain the sharp increase in the company’s share price after the release of the latest trading update.

KAAP AGRI SAID NONAGRI RETAIL SALES CONTINUED TO SHOW STRONG GROWTH DESPITE SUBDUED CONSUMER SPENDING