A pet pro­ject(ion)

Finweek English Edition - - COMPANIES&MARKETS - MARC HASENFUSS

KAP IN­TER­NA­TIONAL isn’t one for the hip in­vestor, of­fer­ing ex­po­sure to old econ­omy seg­ments such as au­to­mo­tive, tex­tiles, pack­ag­ing, footwear, milling and meat. Since peak­ing at around 500c on the JSE in 2007, af­ter the pos­si­bil­ity of cor­po­rate ac­tion tit­il­lated in­vestors, the share has drifted down and lately bounced un­con­vinc­ingly be­tween 200c and 250c.

At its cur­rent price, KAP is trad­ing at a sub­stan­tial dis­count to its last stated net as­set value of around 320c/share and on a for­ward earn­ings mul­ti­ple (pen­cilling in earn­ings of 25/share for the full year to end-June 2011) of around 10 times.

So KAP is by no means an ex­pen­sive share. But then com­pa­nies with au­to­mo­tive and tex­tile ex­po­sure do at­tract some de­risory rat­ings. Ad­mit­tedly, it’s dif­fi­cult to get ex­cited about KAP’s op­er­at­ing di­vi­sions – even those that op­er­ate in spe­cial­ist niches, such as Fel­tex (trim for ve­hi­cles), Glo­d­ina (tow­els) and Wayne/United Fram (in­dus­trial footwear).

Still, have a squiz at KAP’s op­er­at­ing cash flow of R149m (equiv­a­lent to around 35c/ share) and you’ll see those busi­nesses more than just wash their own faces (and also ex­plains the marked re­duc­tion in gear­ing).

How­ever, the X-fac­tor at KAP is the Hosaf PET syn­thetic fi­bres op­er­a­tion, which is aligned to the pack­ag­ing sec­tor and sub­ject to some hefty cap­i­tal ex­pen­di­ture two years ago. KAP pro­vides only a ba­sic (in­dus­trial/con­sumer) divi­sional break­down in its in­terim re­sults but it’s clear Hosaf is hav­ing an im­pact on the in­dus­trial side. The in­dus­trial seg­ment grew prof­its to R68m in the half-year to year-end 2010 com­pared with R54m in the cor­re­spond­ing pe­riod last year.

Hosaf’s prof­itable niche – cou­pled to a higher revving au­to­mo­tive sec­tor – makes KAP an in­ter­est­ing prospect for value in­clined in­vestors.

Our only ques­tion at this stage is: What does Stein­hoff In­ter­na­tional do with its 24,6% stake in KAP?

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