The sap is rising, but not the share price
Agriservices business Kaap Agri — which has a fast-growing retail footprint in its Agrimark stores and The Fuel Company (TFC) — significantly did not raise capital when it listed on the JSE last year.
Admittedly Kaap Agri hardly looked in need of a fresh infusion of capital at the time, and suggestions were that the company could come to the market any time for funding if an appropriate acquisition popped onto the radar. But the company might, in retrospect, have wished it had raised capital when there was still some buzz around a new agribusiness listing.
After peaking at around R63.90 in mid-2017, the Kaap Agri shares have retreated rather rapidly to what at the time of writing was a new low of around R31.50.
Naturally, perceptions about the business have been clouded by the prolonged drought in the Western
Cape, and possibly the more wary atmosphere in agricultural circles around expropriation of land without compensation.
While enthusiasm for Kaap Agri is being rapidly reined back, the group’s stoic executives remain firmly on the front foot in terms of expanding the footprint. Grain storage capacity has been increased, more store sites for its Agrimark and other retail brands are being actively sought and the fuel business is revving hard on the expansion path.
During last week’s investment presentation, Kaap Agri executives admitted the company might need to tap the market at some stage for funding for TFC. With the share at a record low and reflecting a nine times earnings multiple, there might be some reluctance to issue new paper at these desultory levels.
It’s quite possible sentiment will turn quickly if Kaap Agri’s interim results show further evidence that the company emerged from the prolonged drought with very little lasting damage.
But at current levels, I wonder if major shareholder Zeder — the Psgcontrolled agribusiness investor — would not look to bolster its already influential stake in Kaap Agri.
After all, Zeder will soon be looking more flush as a beneficiary of some of the big cash earned by subsidiary Capespan, which sold its minority stake in a Chinese fruit-marketing venture for a significant profit.
By hook or by Crookes
Since we are on the topic of farming — shareholders in Mt Edgecombe-based agribusiness Crookes Brothers might have been sweating before reassuring interim results were released last week. With the much bigger Tongaat Hulett going through a bitter patch, it was heartening to see Crookes sweetening those all-important cash flows by 86% to R52m to end-september.
While the core sugar division (operating profit increased 16% to R78m) performed excellently despite prices still being markedly lower than in the previous two years, it was the smaller segments that really caught the eye.
Revenue from macadamias was reported significantly higher at R8m as new orchards came into production. Crookes’s executives report that growth in this niche continues to exceed expectations. The new property development segment reported revenue 113% higher at more than R35m as the sale of units in Renishaw Hills near Scottburgh gained momentum.
Operating margins were reinforced as early sales were at attractive prices. While margins in the banana division were somewhat squashed, there was still a meaningful profit of around R9.5m.
If the Western Cape-based deciduous fruit division can harvest a profit after the prolonged drought in the region, the next 18 months could be quite interesting for Crookes. Don’t forget the company also expanded its sugar crop area to 6,755ha.
Perceptions have been clouded by the drought … and possibly the more wary atmosphere around expropriation