Ploughing a new furrow
Ivaguely remember the fuel crisis of the 1970s. As a family, I think we escaped the stress because our fleet comprised a spanking new Beetle (albeit a 1600cc) and my aunt’s old Hillman Vogue, which only started after strenuous cranking.
But I do recall draconian speed limits, which were a real bugger for the Uitenhage brekers who leveraged scant pay cheques to buy their Ford Capris (with GT stripes). Our neighbours had a huge Valiant (or was it a Chevrolet Commando?), which subsequently spent a lot of time in the garage and obstructed our table tennis tournaments.
Volkswagen, Uitenhage’s economic epicentre, did a roaring trade with variants of the supposedly fuel-efficient Beetle. Fuel, even after the crisis passed, always had strategic value for me. I could never afford to fill up my 50cc motorbike, and later my sonorous (and much-loved) Honda XL200R. But R1 would buy you enough juice to get to PE for the Friday night “dikskou” at Norma Jean’s. Getting back was a more frightening prospect … nothing is quite as chilling as the bike kicking onto reserve tank at 2am near the remote and ominous mudflats portrayed by Athol Fugard in Boesman and Lena.
Speaking of traversing tricky terrain, kudos to agribusiness Kaap Agri for delivering on its word and ratcheting up returns at retailing business The Fuel Company (TFC). Kaap Agri — particularly its vibrant Agrimark retail brand — has delivered returns (and margins) that would make most mainstay retailers green with envy. The investment in
TFC, despite expanding Kaap Agri’s footprint, has dragged on the overall margin to the extent that the strategic rationale for entering the fuel segment is hardly recognised by investors.
The sale of a good number of properties hosting TFC’s fuel stations and retail add-ons should up the return on capital markedly, but it also gives Kaap Agri — which banks about R445m — additional resources for acquisitions. One hopes the proceeds are spent on expanding the Agrimark network or adding more variety to the retail offering that now spans liquor stores, convenience stores, building supplies and pet stores.
Cementing its place in the market
Moving onto more concrete matters, Sephaku Holdings — which toils in the shadow of its more illustrious countermate PPC — continues to set a firm operational foundation. The group’s latest trading update reports subsidiary Métier Mixed Concrete’s earnings before interest, taxes, depreciation and amortisation (ebitda) for the six months ended September more than doubled year-on-year.
The comparative period does include two months of zero sales in April and May 2020 during the level 5 lockdown. Still, compared with the interim period to end-September 2019, the ebitda estimate is higher by 90%-95% despite lower sales volumes.
Interestingly, Métier has acted swiftly to move into the Western Cape market, opening its first plant in Bellville. Some investors might fret that Sephaku is stretching too quickly. And while Sephaku stressed that Métier will be prudent in securing market share, shareholders might hope for more detail around initial sales volumes in the upcoming interim report.
Associate company Sephaku Cement (SepCem) is also grinding out larger volumes. Readers might remember some intense competition in 2019 from blenders in the inland markets and importers in KwaZulu-Natal. So it’s heartening to note SepCem banged through price increases in February and August. But an unscheduled kiln shutdown will hamper fourth quarter sales.
The bottom line is that SepCem’s ebitda for the nine months to endSeptember will be 12%-15% higher than in 2019 and 2020, but more than likely will end up flat for the full year. Its shares have more than doubled this year. That seems justified, but further gains might need more margin reinforcement.
Speaking of tricky terrain, kudos to Kaap Agri for delivering on its promise to ratchet up returns at fuel retailer The Fuel Company