KAP’s potential disposal of Unitrans for R6bn drives up its shares on JSE by 5%
INDUSTRIAL group KAP could be close to a deal to dispose of its struggling Unitrans division for a reported R6 billion.The
company’s shares rallied to close 4.17% up on the JSE yesterday in response to the news that analysts viewed as a right move in the company’s efforts to reduce debt which forced it to skip a dividend payment last year. KAP, which also owns PG Bison, Restonic and KAP Automotive, said last year that it could sell off some of its assets to reduce debt. The company’s net interest-bearing debt increased by R568 million to R8 billion as at the end of its 2023 full year.
Now, it could be close to disposing of the Unitrans unit for R6bn, Bloomberg reported yesterday. This drove up shares in KAP by R4.63% to R2.26 in afternoon trade on the JSE yesterday, closing at R2.25, although it is down nearly 15% in the past 30 days.
Roy Topol, a portfolio manager at Cratos Asset Management said in an interview yesterday that “Unitrans has been a disappointing business for several years” for KAP.
“It was injected into KAP by Steinhoff many years ago, but has never been core to the KAP group. An exit would make strategic sense,” he explained.
Market analyst, Simon Brown, said the surge in KAP’s shares on the JSE was in response to the news that the company was disposing Unitrans, a company he described as struggling.
In 2023, KAP reported a 75% decrease in earnings per share to 16.7 cents from continuing operations
and attributed this to “a R570m noncash impairment of Unitrans’ goodwill and intangible assets” net of taxation.
“Unitrans has been struggling and while it makes great revenue, profit is modest to negative which always surprised considering the state of Transnet. But a sale would go a long way to reducing debt,” Brown told Business Report.
Unitrans’ poor performance for KAP in 2023 was in stark contrast to the group’s other divisions such as
PG Bison, Restonic and Feltex that recorded “improved” performances. KAP has already embarked on a rationalisation process of Unitrans that involved the closure of under-performing operations and contracts as well as the disposal of related assets.
“The Unitrans South Africa and Unitrans Africa divisions recognised an impairment of R28m and R46m, respectively, related to long-haul vehicles (including rail assets). Rail assets of R53m were transferred to assets
held for sale in the current financial year,” it said.
Anthony Clark, an independent analyst at Smalltalkdaily Research, said in a note it was imperative for KAP to dispose of Unitrans in order to focus the group’s business on its core businesses.
“Unitrans is a supply chain and logistics company while KAP is a an industrial and manufacturing business. The old days of combining interests into a conglomerate are over. Investors these days want clear separation and delineation of assets,” he said.
“Unitrans impaired affected logistics assets in property, plant and equipment by R74m,” the company said.
However, a formal sale process for Unitrans Passenger’s loss-making Intercity and Tourism operations had been unsuccessful in 2021, forcing the company to discontinue the operations.
Bloomberg reported yesterday that KAP has met private equity firms over its intention to dispose of Unitrans although a buyer had not yet been identified. KAP, which is currently in a close period ahead of the release of its financials on February 28, has a market capitalisation of R5.4bn.
“Investors want to buy into specific companies in specific areas. Unitrans is going to be sold; it unlocks value for KAP. I see this transaction as nothing more of a simplification of a conglomeration structure which should unlock value and allow investors to look at KAP for what it is,” added Clark.