KAL Group cautiously optimistic

• Interim dividend rises 8.7% and profit 13.6%, with focus now on nonagricultural operations

Agriculture and lifestyle company KAL Group (previously Kaap Agri) is “cautiously optimistic” about the rest of its financial year because of economic and power-supply challenges.

The group, valued at R2.89bn on the JSE, noted the effect of power cuts in its results for the six months to end-March, and warned that lower GDP forecasts did “not bode well” for local businesses and consumers.

CEO Sean Walsh told Business Day the group had gained greater insight into the local economy as it diversified over the past seven years from an agricultural-focused business to one that operates in agricultural, general retail, retail fuel, fuel convenience and quick service restaurant markets — nonagrirelated operations now account for three-quarters of trading profit.

Walsh said that between farmers and consumers shopping for convenience, such as ready-to-eat meals, there is a “general consumer” in the middle who is buying fewer DIY goods and less cement.

“That is usually your indicator of GDP, because if people are spending on their dwellings or cars, that tells your economy is alright. But if someone is just buying more food, but fewer cars, he is actually just surviving,” Walsh said.

As a result, building contractors and others are under pressure, because people are spending less on infrastructure and home improvement as interest rate hikes squeeze disposable income.

In terms of agriculture, the Ukraine war has pushed up farming input costs, specifically fertiliser and fuel, weakening global consumer demand and consumer buying power.

Meanwhile, local farmers have to find their own solutions to the shortcomings and failures of state-owned enterprises and public infrastructure.

But the newly acquired independent fuel retailer PEG Retail Holdings bolstered the group’s interim results. PEG has 41 service stations throughout SA operating under the Engen, Sasol, TotalEnergies, BP and Shell brands.

According to Small Talk Daily analyst Anthony Clark, KAL Group is cashing in more on the sales from the retail stores than the sale of fuel, in part because of their convenient location.

“They [the shops] tend to operate 24-7-365. They do better during load-shedding, because people will pop in to the convenience store on the way home to pick up some ready meals, food, etc, knowing that shops might be closed or when they get home it will be dark,” he told Business Day.

The group’s profit improved 13.6% to R300.96m and headline earnings per share, a common profit measure in SA that excludes certain items, rose 11.6% to 381.09c.

Gross profit, revenue minus cost of sales, leapt 54.8% to R1.52bn. Operating profit, earned from core business operations, rose 36.1% to R561.2m.

The interim dividend per share was 8.7% higher at 50c.